Description: Complete issue of the August 2014 Risk Management newsletter.

Description: This paper develops a conceptually rigorous formulation of the cost of capital method for estimating margins for mortality, lapse, expense and other forms of underwriting risk.

Description: This paper looks at simple risk margin models that Canadian actuaries should consider if they want to engineer risk loadings.

Description: French language version of Risk Management, August 2014 newsletter.

Description: This paper develops a conceptually rigorous, but practical, approach to estimating risk margins that are consistent with actuary's cost of capital concept.

Description: The Market Cost of Capital approach has emerged as the standard for estimating risk margins for insurers' fair value balance sheets. This paper takes some of the ideas developed for valuing life insurance liabilities and applies them to the problem of valuing credit risky bonds. The basic idea is that credit spreads should cover the cost a) best estimate defaults plus the cost of holding capital for b) contagion risk (e.g. a credit crunch) and c) parameter risk, this risk that the best estimate is wrong and must be revised. We argue that the margins required for parameter risk can capture liquidity issues. In addition, the models developed here allow the cost of capital rate itself to be a random variable which allows credit spreads to open and close stochastically. Finally, the paper argues that it is reasonable to include something like AA best estimate default rates and liquidity spreads when valuing insurance liabilities. The main rationale for doing so is the idea that there are elements of the total credit risk issue that can be hedged between the assets and liabilities.

Description: The Market Cost of Capital approach has emerged as the standard for estimating risk margins for insurers' fair value balance sheets. This paper takes some of the ideas developed for valuing life insurance liabilities and applies them to the problem of valuing credit risky bonds. The basic idea is that credit spreads should cover the cost a) best estimate defaults plus the cost of holding capital for b) contagion risk (e.g. a credit crunch) and c) parameter risk, this risk that the best estimate is wrong and must be revised. We argue that the margins required for parameter risk can capture liquidity issues. In addition, the models developed here allow the cost of capital rate itself to be a random variable which allows credit spreads to open and close stochastically. Finally, the paper argues that it is reasonable to include something like AA best estimate default rates and liquidity spreads when valuing insurance liabilities. The main rationale for doing so is the idea that there are elements of the total credit risk issue that can be hedged between the assets and liabilities.

Description: This article discusses the concept of All models are wrong but some are useful.

Description: This paper develops a conceptually rigorous, but practical, approach to estimating risk margins that are consistent with actuary's cost of capital concept.

Description: This session will start with an overview of why this is important along with a number of practical ways to achieve the objective. Topics covered in this talk include what has been done on the issue so far (e.g. Solvency II, IFRS, U.S. GAAP, PBR) and new and practical ideas in the goldilocks’ zone (i.e. that are neither too simple nor too complicated).