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Enterprise Risk Management through Deterministic Scenario Analysis

April 2025

Authors

David Schraub, FSA, CERA, MAAA, AQ
David Schraub Actuarial Consultancy

Max J. Rudolph, FSA, CERA, CFA, MAAA
Rudolph Financial Consulting, LLC

Executive Summary

Deterministic scenario analysis, including a disruptive event, and the actions from management, regulators, and other stakeholders, is a powerful tool to test the effectiveness of mitigation strategies and resilience on the key components of the insurance value chain. The primary objective of this research report is to understand the process used by companies when performing deterministic scenario analysis. The secondary objective is to understand the impact of one scenario on the life insurance industry.

This research articulated a plausible moderately adverse scenario, and collected insight from companies:

  • A moderately adverse scenario was built: a worldwide IT disruption neutralizing most systems, with relatively quick recovery.
  • The impact was considered by all as an earnings event, as opposed to a capital or solvency event. This was categorized as an operational risk.
  • Companies integrated not only the direct impacts on their operations, but also the indirect impacts (on sales force motivation, medical providers for health insurance, competition, interest rates, and inflation…) in the analysis.
  • Most companies used table-top exercises to estimate the impact of this scenario[1] and its ripple effects, leveraging the experience of its senior managers and not actually completing a quantitative model.
  • Outside of this research, companies indicated they use a similar table-top method for scenario analysis, unless the scenario analysis is part of a regulatory requirement with prescribed processes.

We are grateful to those companies that took part in this important opportunity to share knowledge and practice with fellow risk professionals.

Material

Enterprise Risk Management through Deterministic Scenario Analysis

Acknowledgments

The researchers’ deepest gratitude goes to those without whose efforts this project could not have come to fruition: the Project Oversight Group for their diligent work overseeing, reviewing, and editing this report for accuracy and relevance. Any errors remain the responsibility of the author.

Project Oversight Group members:
Bronwyn Claire
David Ingram, FSA, MAAA, CERA
Mark Mennemeyer, FSA, MAAA
Matthew Stahl, ASA, MAAA, CERA

At the Society of Actuaries Research Institute:
Korrel Crawford, Senior Research Administrator
Dale Hall, FSA, MAAA, CFA, Managing Director of Research

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If you have comments or questions, please send an email to research@soa.org.

 

[1] Deterministic scenario that develops over time and includes operational or strategic components, not sensitivity analysis quantification for key modeled assumptions