Description: Obsolescence of physical assets and processes is a major component of operational risk for some companies. A simulation experiment shows that managers, who consider the retirement and replacement of individual assets in isolation, have rational incentives, due to risk aversion and uncertainty, to defer the replacement of assets past a time that is optimal from the perspective of the shareholder who owns the entire portfolio of such assets. This results in measurable wealth destruction, —and a demonstrable opportunity to significantly enhance a company’s value. A practical decision model for the replacement timing of fixed, physical assets, which creates wealth by minimizing the long-term consumption of scarce resources, is provided.

Description: A framework to measure and evaluate the risk-adjusted investment performance given the characteristics of the insurance liability.

Description: Read the French language version of the December 2017 issue of Risk Management published by the Joint Risk Management Section. Newsletters provide practical information for the working actuary, articles on trends that impact sections and news about section activities.

Description: Highlight of the ERM Symposium