Description: The method described in this paper is to allocate surplus to each category of business and reserves in proportion to its estimated effect on an insurer's surplus variation. Risk load for each category of business is then selected so that the return on allocated surplus for each category is equal to the overall return on surplus. From Actuarial Research Clearing House 1993, VOL. 3.

Description: The National Association of Insurance Commissioners (NAIC) is in the middle of of a project to change the real-world economic scenario generator (RW ESG) prescribed for principle-based reserve and capital calculations. The presenters will provide a brief summary of the NAIC's RW ESG project and provide a general overview of RW ESGs. In addition to that, they will explain how RW ESGs impact principle-based reserve and capital levels and consider potential differences between the currently prescribed RW ESG and the proposed RW ESG.

Description: 2021 Life Meeting - Session 6D: The Importance of Joint Credit-Market Risk Modeling 8.31.21 Recording

Description: Economic Scenario Generator - Investment Section Web Series - Risk Neutral

Description: We derive formulas for calculating the premiums that should be charged on policies in a discounted cash flow model with tax reserves and required assets that are determined by regulation. We also determine the unique division of required assets into “reserves” and “capital” that allows the product profitability to be correctly evaluated. That is, the profit after capital charges is zero if the product achieves the return assumed in pricing. We illustrate the concepts using whole life insurance and guaranteed minimum death benefit examples.

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: The purpose of this paper is to help practitioners and regulators more accurately quantify the potential impact of market risk on insurance products with equity-linked guarantees. To this end, this paper examines time series model selection and assessment based on residuals, with a focus on regime switching models. Also it discusses the difficulties in defining residuals for such processes and propose several possible alternatives. We determine that a stochastic approach to defining the residuals is the only way to generate residuals that are normally distributed under the model hypothesis.

Description: 2021 Life Meeting - Session 5E: Importance of Strategic Asset Allocation in a Rapidly Changing Macro Environment 8.31.21 Recording

Description: Economic Scenario Generator - Investment Section Web Series Session #1 - Fundamentals & Hot Topics This session will cover the following points: 1. Introduction: ESG Basics, What is Risk Neutral and Real World? 2. Interest Rate Modeling 3. Equity and Private Equity Modeling 4. Example use cases facing investment professionals and actuaries today

Description: This paper introduces the Bond Manager's Method for ALM which allows the impact of a change in interest rate levels on the present value of a stream of cash flows to be directly determined from the coupon rates and prices on benchmark bonds without the intermediate step of determining spot rates. From Actuarial Research Clearing House 1993, VOL. 3.