Description: Commentary on practical observations resulting from constructing and running Economic Capital models. Possible standardization of assumptions and result interpretation are morphing even though use of E.C. models has now been around for years.

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: Summary of the SOA research project on PBR Simplified Methods. Describes the multi-risk scenario generator, central estimate assumptions, assumption objectivity measures, and regulatory demonstrations per VM-20.

Description: Commentary on practical observations resulting from constructing and running Economic Capital models. Possible standardization of assumptions and result interpretation are morphing even though use of E.C. models has now been around for years.