Description: 2011 SOA Enterprise Risk Management Symposium, Chicago. In this paper, a multivariate quasi-negative binomial distribution is proposed to model frequency dependence among different risk types. The operational risk diversification effect is illustrated through frequency dependency modeled by the bivariate quasi-negative binomial distribution under a framework of Monte Carlo simulation.

Description: This paper evaluates the current practice of operational risk management in the insurance sector. Operational risk is nothing new in insurance, but, because of regulatory requirements, companies have initiated computation of risk capital for their operational losses. The current effort to manage operational risk is not a naturally evolving phenomenon, and operational risk, in the Basel Committee on Banking Supervision’s Basel II definition, is unlikely to be a significant cause of insurers’ failure. In addition, the current Basel II definition of operational risk is not suitable for the insurance sector. Consequently, the invention of models and tools based on the definition is incomplete and illusionary. My findings are based on the analysis of dozens of interviews with insurance industry professionals. I demonstrate the way operational risk is quantified in practice, show that the result obtained from this computation is of littl e use in managerial decision making and propose a set of policy recommendations illustrating the characteristics of operational risk in insurance. This study can be used as a platform for launching dialogues to initiate fresh thinking about operational risk in insurance beyond the current artificial and narrow boundaries.

Description: This is the first of a two-part article introducing and elaborating an “Adaptor” strategy for ERM. Such a strategy is intended to fulfil two purposes: first, switching among four styles of risk-coping strategies in order to track qualitative changes in a business’s risk environment; and, second, to support the business in navigating with resilience through all the seasons of a business-economic cycle, i.e., of boom, bust, moderate, uncertain. This latter requires careful study of the nature of resilience, the familiar idea of bounce back, and the less familiar idea of bounce forward. Part I of our article is underpinned therefore by a supplementary document (available from https://riskviews.wordpress.com/adaptor-exceptionalism/), which addresses the issue of structural change in a business or economy. It draws heavily on ideas taken from the discipline of control engineering, as well as some from ecology, social anthropology, and economics. The entire two-part article is thus an exercise in cross-disciplinary Systems Thinking.

Description: This article describes the financial modelers’ manifesto. Focus is on how difficult it is to model financial instruments when there is a human element involved.

Description: This article provides an overview of the commonly used structural credit risk modeling approach that is less familiar to the actuarial community.

Description: This article talks about the role that models played in the subprime meltdown and the subsequent crisis in the financial markets in general. The models failed to provide information about the magnitude of potential 'black swans'. Extreme Value Theory [EVT] is described as a potential solution to this error.

Description: There is widespread acknowledgement in the insurance industry that cyber risk remains an untamed and seemingly ever-growing beast. It is also unique in the family of risk exposures faced by insurers in that it is both an emerging risk and an emerged risk. What are companies doing to keep on top of this risk? What are actuaries doing to contribute to cyber risk management, and what can we learn from other industries and disciplines?

Description: This article discusses the reliance the banking industry placed on sophisticated mathematical models.

Description: The United States Geological Surv ey USGS released the latest version of its National Seismic Hazard Maps NSHM in April 2008. The maps, which were last updated in 2002, define the latest scientific view of earthquake hazard at varying probability levels across the United States.