Description: Contains two separate articles, called notes. The first note, “A note on correlation in mean variance portfolio theory,” is an elementary discussion of how negative correlation coefficients can be, given any set of N random variables. The second note, “Two essential formulas in actuarial science and financial mathematics,” gives a more or less self-contained introduction to Jensen’s inequality and to another formula, which the author decided to call the “survival function expectation formula.”

Description: Risk management and capital budgeting are two critical components of the corporate decision process. They often need to be considered jointly at the corporate level because of their natural interaction through the dependent risk exposures and other synergetic relationships within an intricate corporate structure in a dynamic business environment. . This paper develops an integrated framework that aligns these two important corporate strategies across business divisions to optimize the streamlined enterprise strategic goal in a multi-period setting. The proposed integrated framework can serve as a practical guideline for corporate executives to optimally coordinate capital budgeting and risk management at the enterprise level.

Description: From the 1985 Valuation Actuary Symposium Discussion of the process for evaluating the financial soundness of an insurance organization from organizations outside of the Company

Description: For most of the last forty years, corporate defined benefit pension plan assets have been managed to balance risk versus reward in more or less the same way that a risk averse individual would do with his own portfolio. Recently liability cognizant strategies have been developed, but these also attempt to balance risks and rewards. But pension plans are not individuals; they, much like their widely-held corporate sponsors, are pass-through institutions. The economics of such entities are found in the corporate finance literature rather than in the literature of portfolio choice. The corporate finance (and thus the pension finance) objective is economic value added rather than return for risk. Enterprise risk management is a corporate finance activity too and its goal should also be value added rather than return for risk. The intersection of enterprise risk management and pension finance leads to a value-based discipline with two startling results: • Widely-held corporations can increase shareholder value by hedging away their own systematic risk (e.g., CAPM β). • Very many corporate defined benefit pension plans should define their liabilities and manage their assets to develop a net short equity exposure (negative β).

Description: Recent reports have expressed concern over historically high levels of corporate indebtedness, with an increasing share of investment-grade debt now in the BBB category, just above speculative-grade. This session will explore trends in the corporate debt market, with a focus on the risks and opportunities for portfolios in the current environment.

Description: This session from the 1984 SOA New York City Meeting discusses the organizational and practical implications of segregating the General Account including how to allocate existing assets by product line, organizational changes required, regulatory implications and accounting and systems consideratons. Record of the Society of Actuaries Vol. 10, No. 3

Description: In this session, panelists will lift the curtain on the main features of investment grade (IG) private placement bonds and below investment grade (BIG) private debt and compare them with available public bond and bank loan alternatives. The panel will examine the motivations for insurance companies and pension funds to invest in private debt and the legal, diligence and operational requirements to maintain a private debt portfolio. We will also conduct a 2017 private placement market review and look forward to 2018’s likely new USD and non-USD issuance and which industry sectors are likely to issue. This session will also cover their risk and reward characteristics, and the structural intricacies of the various IG and BIG debt types and whether there is sufficient compensation for illiquidity and other risks.

Description: Summarizes a research paper considering insurer performance during the financial crisis, with actions and circumstances that improved results highlighted.

Description: Feature article describing how traditional pension asset allocations contain so much risk that the details of the “liability benchmark” have been largely ignored.

Description: A research report providing a primer on the mechanics and uses of the Hidden Markov Model for actuarial and financial applications.