Description: This case study is intended to educate insurance professionals on historical insurer impairments and insolvencies and possible future prevention indicators.

Description: This article discusses the current state of the IAIS' initiative on their group Insurance Capital Standard.

Description: The author uses a generalized asset risk model to explore C1 risk, drawing heavily from investment theory and pension fund management, applying these to an insurance general account. This article has two parts the first part, contained in this issue of Risk and Reward, describes the basic C1 model itself. The second part, which will be published in the next issue of Risks and Rewards, discusses various implications of the basic C1 model, especially related to managing the company’s investment portfolio.

Description: This article explores the effectiveness of hedging delta and rho of equity options. This provides insight into the frequency and severity of losses due to not hedging volatility risk or other higher order risks. 10yr-equity put option strategies were chosen to represent the risk of hedging guaranteed benefits attached to variable annuities, while 1-yr put and call strategies were modeled to investigate the risk of hedging equity index interest credited to fixed indexed annuities. In both cases, the value of the option was compared to the value of delta/rho hedges in the tail of both actual historical and simulated scenarios for equity returns and volatilities. The historical path of interest rates and equities was generally used to highlight the hedge impact for different implied volatility assumptions in each example.

Description: The article outlines a shareholder value framework for pension risk management and applies this framework to pension funding decisions in light of rising PBGC premiums due to 2013’s BBA legislation. The article finds that the new legislation significantly incentivizes plan sponsors to increase pension funding. Moreover, many tax-paying pension plan sponsors can increase shareholder value by increasing pension plan contributions.

Description: Insurance companies use derivatives to manage and mitigate risks that are inherent in their investment or liability portfolios, including traditional asset/liability matching, dynamic hedging and static hedging. The authors explore how Solvency II will influence life insurers’ hedging strategies.

Description: In the June 2014 issue of Product Matters, Doug Robbins of Pacific Life authored a fascinating article entitled “Velocity of Diversification.” Therein, he proposed a pricing measure that describes the “…speed at which confidence in profitability is attained”. How can stochastic modeling of mortality be applied to analyze the velocity of diversification, and how would that measure be affected by volatility in the underlying assumptions?

Description: This article discusses the actuarial profession and its role and needed skill set development going forward in meeting the needs of businesses for risk management and capital management

Description: This paper investigates the interaction between a credit portfolio and another risk type, which can be thought of as market risk. We analytically calculate their inter-risk correlation and show how inter-risk correlation bounds can be derived.

Description: Scenario analysis and stress tests based on consideration of shock events and their possible repercussions can provide useful information to management and regulators on a company’s resiliency through a chain of events, as well as support the consideration of a firm’s operations as an integral part of a wider financial system. We discuss how scenario analysis and stress testing can be used to define a company’s risk appetite, which is at the core of a well-embedded ERM framework. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.