BACKGROUND and PURPOSE
Within the actuarial practice, there are established methods and techniques for setting "best-estimate" assumptions. By definition, actual observed values will differ from the best estimate. This could be driven by:
- Random variation or volatility in the underlying process (process risk)
- Parameter uncertainty (parameter risk); the degree to which the underlying risk is not known in advance.
While resources exist in actuarial literature, outlining theory and methodologies for measuring process risk, little theory or practice is available in addressing / quantifying parameter uncertainty. The purpose of this project is to create a resource to help actuarial practitioners advance the development of best practices for evaluating and measuring parameter uncertainty.
The Joint Risk Management Section Research Committee is seeking a researcher(s) to:
- Perform a review of existing literature related to insurance risks summarizing research on parameter uncertainty (PU). Insurance risks include life, pension, health, and general insurance. In addition to actuarial literature, the researcher is encouraged to survey literature in other disciplines where the same challenges exist.
- Develop a practical methodology for calculating parameter uncertainty for insurance risks. The practical methodology can be focused on one insurance specialty. The following questions are impacted by parameter uncertainty. We recommend that the research addresses questions on this list:
- How to use PU in a probabilistic or stochastic analysis, incorporating increased PU as time passes?
- How is PU in a risk impacted when both frequency and severity are not known?
- How is PU in a risk impacted when the risk is linked to other variables, including systemic environmental variables?
- How to measure and communicate the PU associated with a given block of experience data? This will facilitate identification of the amount of PU in an industry table or study, or within a company's own experience.
- If a best-estimate assumption blends an industry table with a company's own experience, how to combine the PU associated with each input into an overall PU?
- What inputs are needed to calculate PU as part of the preparation of future industry studies?
- What would be involved in calculating PU for existing tables?
- How does PU relate (if at all) to the concept of credibility, which is currently used in some situations to set best-estimate assumptions?
The researcher(s) will summarize findings of the literature review and practical methodology into a report to be made available on the SOA website.
To facilitate the evaluation of proposals, the following information should be submitted:
- Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
- An outline of the approach to be used (e.g., literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
- A description of the expected deliverables and any supporting data, tools or other resources.
- Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
- A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The Joint Risk Management Section Research Committee is interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely deliver, such as fee adjustments, are encouraged.
- Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.
The Joint Risk Management Section Research Committee will appoint a Project Oversight Group (POG) to oversee the project. The POG is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the POG will make the final decision. The SOA's Research Actuary will provide staff actuarial support.
Any questions regarding this RFP should be directed to Ronora Stryker, SOA Research Actuary (phone: +1-847-706-3614; email:
NOTIFICATION OF INTENT TO SUBMIT PROPOSAL
If you intend to submit a proposal, please email written notification by October 13, 2015 to
SUBMISSION OF PROPOSAL
Please email a copy of the proposal to
Proposals must be received no later than October 30, 2015. It is anticipated that all proposers will be informed of the status of their proposal by the end of November 2015.
Note: Proposals are considered confidential and proprietary.
The Society of Actuaries reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The Society of Actuaries also reserves the right to redirect the project as is deemed advisable.
The Society of Actuaries plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).
The Society of Actuaries may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the Society of Actuaries in publicizing or promoting the research and responding to media requests.
The Society of Actuaries may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by the Society of Actuaries, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.