Description: The articles discusses how Principles-based approaches PBA to setting reserves and capital can be combined with Enterprise Risk Management to create a competitive advantage for an insurance company. Those companies can leverage these models by combining unique risks and strategies to measure and manage risk.

Description: Panelists at this session of the SOA 2003 Washington, DC Spring Meeting explore economic capital from the standpoint of an SOA task force including an industry survey, one company's implementation, and a regulator.

Description: Panelists discuss economic capital, capital modeling, and hedge modeling, especially for guaranteed living benefits [GLBs] on variable annuities. Session 34PD of the 2005 Valuation Actuary Symposium.

Description: Actuaries and rating agencies increasingly believe that the NAIC's formulaic required capital standard does not adequately address a company's insurance, economic market and credit, reporting and pricing risk structure. Economic capital, based upon a stochastic evaluation of a company's total risk exposures, presents a new approach for accurately gauging a company's exposure to risk. Attendees learn what economic capital is, how it is calculated, what it tells company management about risk exposures and how it can serve as a valuable risk-adjusted measurement tool. From the Record of the Society of Actuaries, Volume 29, No. 1: Washington D.C. Spring Meeting, May 29–30, 2003, Session 24OF.

Description: Economic capital models are getting increasingly complex. An alternate copula free approach is presented which uses accounting data and an implicit correlation model to simplify economic capital calculations. Model simplification leads to robust and stable models. A banking case study is used to showcase how the model can be deployed using publicly available accounting data, capital adequacy, leverage ratios and shortfall tools.

Description: Describes how the mantra of 'tax cuts will pay for themselves" along with the political unwillingness to cut spending (extant since the 1980s), has led to this increasing debt problem in the U.S., reaching $17 trillion at time of writing. Other countries are behaving in a similar fashion, and it can be only a matter of time before the globe may reach another crisis, this time based on excessive government debt coupled with fewer interested investors.

Description: In recent years, insurers have focused attention on the implementation of economic capital frameworks as part of risk management. Due to the diversity of products in an organization’s portfolio, its overall risk profile is comprised of different risk categories. The general framework used by an organization for economic capital purposes is to determine its exposure to each risk independently, then aggregate them to produce an overall risk profile. This is a study of aggregation techniques in use.

Description: Increasing uncertainties and volatility in financial as well as real goods markets increasingly reveal that controlling systems based on deterministic and pseudo-exact values are insufficiently eligible to manage the business activities. This raises the question how management systems can be modified to generate the adequate management impulses in volatile periods. Risk management deals from identifying, evaluating and aggregating chances and risks, which again determine the potential fluctuation range of relevant performance indicators. Everyday corporate life shows that risk management is considered important; but the corresponding processes to identify, evaluate and report chances and risks are seldom part of established decision criteria. This “paradox” lets assume that risks are managed in various differing and unsystematic ways. The combination of traditional controlling methods and risk management is not primarily a methodological challenge. The behavior of the whole organization, practiced over a long-year period, has to be transferred into a new corporate culture of transparent dealing with chances and risks. This paper describes the necessary change management process, which has to come along with necessary methodological modifications.

Description: In this Chapter we present a novel way for estimating aggregated EC figures based on Bayesian copula estimation. Contrary to the classic approach of using a single inter-risk- correlation matrix we derive a probability distribution of possible correlation matrices that enables us to tackle the important issue of parameter uncertainty. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.

Description: This paper illustrates a current approach to capital allocation, referred to herein as Tail Contribution Analysis TCA, using it to evaluate the impact of changes in an insurer’s operations by allocating capital to individual lines of business. It then highlights a common problem in the implementation of the procedure arising from reserve volatility and briefly notes the failure of the methodology to account for a firm’s changing levels of risk under various strategies. Finally, it introduces an alternative method for analyzing business segments and strategies called Economic Profit Analysis EPA. We will discuss EPA’s key feature, “volatility replication,” an intuitively appealing process of building investor expectations and capital market information into the risk-and-return measurements used to evaluate strategic decisions. Finally, we will illustrate the benefit of using EPA in overcoming the problems of TCA and thereby providing concise reliable information for business decision making.