Description: Presentation discussing modeling of daily and hourly rainfall, both occurrence and amount. These distributions would be needed to price derivative or insurance contracts involving rainfall amounts.

Description: Modeling experience sharing by David Yu who leads the retirement product and asset model development team within Prudential Financial

Description: The panel demonstrates a technique that can help set confidence intervals regarding future rate increases used to satisfy the NAIC rate stabilization model. Specific topics include creating a stochastic model, deciding which variables are deterministic vs. stochastic, developing probability distributions for the stochastic variables, running the model and evaluating the reasonableness of results. From the Record of the Society of Actuaries, Volume 30, No. 1, Session 21

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.

Description: Presentation at the 41st Actuarial Research Conference held on August 10-12, 2006 in Montreal, QC. This paper considers the problem of extending regime-switching models for asset returns to the situation with multiple asset markets. The conditional tail expectation CTE is highly sensitive to the assumed dependence structure between the regime models for the different markets. A Monte Carlo simulation is used to illustrate the cost of misspecification. The authors find that the model most commonly used by practitioners is worse than all of the alternatives that they investigate.

Description: This article presents a case study that examines the implication of using real-world interest rate scenario generators with a block of fixed deferred annuities. We contrast cash flow testing results based on New York 7 deterministic scenarios to stochastic scenarios generated with the Academy Interest Rate Generator , as well as an alternative economic scenario generator designed explicitly to capture the risk of a persistently low interest rate environment and the transition to a rising interest rate environment.

Description: This paper presents a new methodology for obtaining fast algorithms and closed form solutions for pricing callable bonds in continuous time models. Results are directly applicable to regulatory scenario testing, immunization and market value accounting.

Description: This work investigates the use of a statistical approach to calculate the incurred but not reported IBNR reserve directly. This allows for the reserve to be estimated in one step, without completion factors, and it provides a confidence interval around the estimate of IBNR as well.

Description: In this paper, we derive three important longevity Greeks on the basis of an extended version of the Lee-Carter model that incorporates stochastic volatility.