Description: This is A Value-Based Longevity Index for Hedging Retirement Income Portfolios abstract authored by Jonathan Ziveyi, Kevin Krahe, Michael Sherris, Andres M Villegas for Session 1A of the January 13-15, 2020 Living to 100 Symposium in Orlando, Florida.

Description: This is A Value-Based Longevity Index for Hedging Retirement Income Portfolios paper authored by Jonathan Ziveyi, Kevin Krahe, Michael Sherris and Andres M Villegas for Session 1A of the January 13-15, 2020 Living to 100 Symposium in Orlando, Florida.

Description: This is the Quantification and Management of Longevity Risk in China paper authored by Johnny Li, Kenneth Q. Zhou and Wai-Sum Chan for Session 1A of the January 13-15, 2020 Living to 100 Symposium in Orlando, Florida.

Description: These are the Discussant Comments by Sam Gutterman for the Trends in Life Expectancy and Lifespan Variation After Retirement Session 1B of the January 13-15, 2020 Living to 100 Symposium in Orlando, Florida.

Description: This is the Does Migration Result in Mortality Improvement: A Case Study in Taiwan paper authored by Chih-Kai Chang, Jack C. Yue and Yen-Wen Chen for Session 3B of the January 13-15, 2020 Living to 100 Symposium in Orlando, Florida.

Description: Wavelet models are used to analyze risk by time and frequency and provide richer information than time series models.

Description: This is the transcript for Session 5B : What is Different Today for Post-retirement Financial Planning? from the 2017 Living to 100 Symposium in Orlando.

Description: This is the informal discussion transcript from Session 3B: Comparing Mortality of Different Groups from the 2017 Living to 100 Symposium in Orlando.

Description: The Effect of Medical Technology on Health Care Cost, the Effect of Health Care on Longevity and Vice Versa.

Description: The Effect of Medical Technology on Health Care Cost, the Effect of Health Care on Longevity and Vice Versa.

Description: Overview/Foreword by the 2017 Symposium Chair and Foreword by the 2020 Symposium Chair.

Description: In this paper, we derive three important longevity Greeks on the basis of an extended version of the Lee-Carter model that incorporates stochastic volatility.

Description: View the program from the 2017 Living to 100 International Symposium.

Description: Many risk management decisions involve the timing of implementing risk strategies. The cost of hedging, capital raising and securitization changes with the economic environment. The timing of de-risking and investment in new risk management functions affect the cost and benefit of these projects as well. Like investment timing, it is important to consider the timing in risk management decisions to maximize the gain of risk management projects. This paper discusses methods of determining the appropriate timing of implementing a risk management strategy or investing in risk management projects. It explains the human biases that may lead to inferior timing decisions. It also covers the costs and benefits of risk management projects and the impact of new information on the decision-making process. Timing considerations for financial risk hedging, insurance risk hedging and investment in new risk management projects are explained. Factors used for timing decisions include economic conditions, market volatility, credit rating, borrowing cost, capital adequacy and financial resources.

Description: Stress tests and scenarios are often used as an informative tool to help stakeholders understand the risk profile of a firm. These analyses are often informational only and not directly linked to internal decision-making. This paper describes our approach to integrating stress tests into a regular decision-making process as part of our Own Risk and Solvency Assessment (ORSA). We have implemented a framework and analytical process that both enhances management’s understanding of our risk profile and links that to the development of our risk appetite. In this applied paper, we describe the framework and supporting analytics we established to achieve this goal and the practical implications for obtaining buy-in from senior management to establish this as an ongoing process.

Description: A sound enterprise risk management (ERM) framework functions as an ecosystem by balancing the interdependencies of its elements while constantly adapting to an ever‐changing, external environment. Each stakeholder has a unique role to play in forming a thriving ERM ecosystem by integrating risk‐conscientiousness in decision‐making. A resilient ERM framework has a single well‐ understood risk language and culture to promote healthy risk‐taking behaviors. The central focus of such a framework is concentrated around all stakeholders and everyone is held accountable. Every day, external forces can potentially disrupt how we operatively conduct business. Unforeseen changes in regulation, market trends, terrorist’s attacks and extreme natural disasters are often categorized as extremely adverse. How then will your ERM ecosystem survive the one‐in‐200 event and continue to flourish through dynamically changing environments?

Description: A sound enterprise risk management (ERM) framework functions as an ecosystem by balancing the interdependencies of its elements while constantly adapting to an ever‐changing, external environment. Each stakeholder has a unique role to play in forming a thriving ERM ecosystem by integrating risk‐conscientiousness in decision‐making. A resilient ERM framework has a single well‐ understood risk language and culture to promote healthy risk‐taking behaviors. The central focus of such a framework is concentrated around all stakeholders and everyone is held accountable. Every day, external forces can potentially disrupt how we operatively conduct business. Unforeseen changes in regulation, market trends, terrorist’s attacks and extreme natural disasters are often categorized as extremely adverse. How then will your ERM ecosystem survive the one‐in‐200 event and continue to flourish through dynamically changing environments?

Description: The author constructed the efficient frontier of new business sales by modeling the embedded value and economic capital against a universe of possible growth rates of the three lines of business in a typical three-year planning horizon. The ERM function can use the efficient frontier of new business to provide a more rigorous analysis of the impact of growth rates on the firm’s overall capital efficiency and value creation, hence forming a feedback loop with the businesses in the planning process to optimize the growth strategy.

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: Adaptive Risk Management harnesses social intelligence to identify emerging risks. We have entered an age of disruption where exponential technologies are transforming every industry. The ability to pivot in a rapidly evolving ecosystem is essential. Centralized “predict and control” paradigms will increasingly fail as complex interactions drive phase transitions. Successful organizations will harness social intelligence to “sense and respond” to giant waves of change. Maps amplify intelligence to help us navigate challenging terrain. Maps play a central role in all command centres, enabling rapid risk identification with a shared visual language. Interactive financial network maps allow analysts to explore and diagnose systemic fragilities, and mitigate critical vulnerabilities. Dynamic financial maps can also build visual intuition to detect escalating risk patterns. After observing early warning signals, analysts can apply network analytics to estimate likely second order effects. This allows organizations to proactively manage emerging risk before tipping points are crossed.

Description: Adaptive Risk Management harnesses social intelligence to identify emerging risks. We have entered an age of disruption where exponential technologies are transforming every industry. The ability to pivot in a rapidly evolving ecosystem is essential. Centralized “predict and control” paradigms will increasingly fail as complex interactions drive phase transitions. Successful organizations will harness social intelligence to “sense and respond” to giant waves of change. Maps amplify intelligence to help us navigate challenging terrain. Maps play a central role in all command centres, enabling rapid risk identification with a shared visual language. Interactive financial network maps allow analysts to explore and diagnose systemic fragilities, and mitigate critical vulnerabilities. Dynamic financial maps can also build visual intuition to detect escalating risk patterns. After observing early warning signals, analysts can apply network analytics to estimate likely second order effects. This allows organizations to proactively manage emerging risk before tipping points are crossed.

Description: Improving understanding of the complex relationships among financial entities is critically important for risk managers and for financial authorities charged with multiple policy objectives. High quality information is lacking at both the intra- and inter-enterprise levels and to support analysis of the financial network. Put simply, the current quality and quantity of relationship data is not sufficient to deliver on the ultimate objectives. For the purpose of this discussion we use a very generic definition of a term relationship somewhat similar to the definition used to describe human relationships. And like in the human relationships case we will not claim that only marriage and blood connection makes your relatives, but also loaning a book, loving, hating and sharing a flat. In the financial context, the relationships may be determined by accounting rules set, for example, by IFRS or US GAAP, as well as regulatory requirements in areas o f risk management, market integrity, know-your-client, network analysis and statistical consolidation. The financial industry and regulators have spent countless hours arguing and debating the definition of ownership. The problem lies in the question itself. We suggest that as part of any relationship data system the best approach is to put the question aside and avoid a conceptual and practical quagmire. Rather, we recommend collecting and storing less-subjective granular data on theactual legal and economic relationships between firms, which provides a flexibleframework from which any user can answer the question on corporate relationships he or she determines is appropriate at a given time. Encouragingly, technological solutions are available to accommodate this multiplicity of requirements in a single solution. The paper outlines where the practical challenges are that inhibit the development of high quality relationship data and how they can be overcome.

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: Comments on session 1A presentations

Description: This paper presents the output of in-house research on an emerging area of risk appetite management and our global implementation best practices. It intends to provide readers with detail implementation of risk appetite framework and assessment across an organization. It provides the conceptual risk appetite framework based model- developed by the author, implementation plan, and global best practices of a risk appetite assessment across an organization. It identifies the challenges and exceptions in the risk appetite assessment with an approach to manage it effectively, and helps organizations with cost-benefit analysis. It also includes an illustrative case study.

Description: A common approach to estimating the total amount of savings required to fund retirement is to first apply a generic “replacement rate” to pre-retirement income, such as 80%, to get the desired retirement income need. That need is then assumed to increase annually at the rate of inflation for the duration of retirement, which is generally assumed to be some fixed period, such as 30 years. Using government data along with a fairly simple market and mortality model, we explore these assumptions to more accurately estimate the true cost of retirement

Description: We introduce a logistic regression-based modeling approach for analyzing the U.S. insured mortality experience, including at advanced ages where less credible experience data are available. As a validation, we create a version of industry basic experience tables based on the model-estimated mortality and compare them to standard industry experience tables produced by the Society of Actuaries (SOA). The conclusion is that properly designed logistic modeling processes can more efficiently utilize available data to deliver solutions for multiple needs, including: a) testing mortality drivers’ statistical significances in explaining mortality variations; b) estimating normalized mortality slopes and mortality differentials such as how mortality increases by duration or varies between underwriting classes while product and attained-age distributions are controlled; and c) addressing analytical challenges such as extrapolating for ultimate mor tality, smoothing between select and ultimate estimations, and constructing multidimensional basic experience tables.

Description: Abstract: Over the last century, the assumption usually made was that causes of death are independent, although it is well-known that dependencies exist. Recent developments in econometrics allow, through Vector Error Correction Models (VECM), to model multivariate dynamic systems including time dependency between economic variables. Common trends that exist between the variables may then be highlighted, the relation between these variables being represented by a long-run equilibrium relationship. In this work, VECM are developed for causes-of-death mortality. We analyze the five main causes of death across ten major countries representing a diversity of developed economies. The World Health Organization website provides cause-of-death information over about the last 60 years. Our analysis reveals that long-run equilibrium relationships exist between the five main causes of death, improving our understanding of the nature of dependence between these com peting risks over recent years. It also highlights that countries had usually different past experience in regards to cause-of-death mortality trends and thus, applying results from one country to another may be misleading.

Description: Most actuarial explorations of increased longevity have, quite understandably, focused on its direct financial implications for things like health care costs, retirement systems, and social security or other public policy provisions. But future life extension has many other potential implications, both direct and indirect, for various socioeconomic factors, which in turn have the potential to affect the actuarial valuation of future risk contingencies. This paper examines a sampling of the socioeconomic issues emerging from the possibility of substantially increased longevity. Because of the complexity and interrelatedness of these issues, actuarial and risk modeling of this prospective environment could be a significant challenge.

Description: The conventional methods for genetic analyses of data on aging and longevity-related traits underutilize available information on aging, health and life span and treat the limited data set as the only source of information about the traits. We show that the power and biological relevance of GWAS can be enhanced by incorporating the biological and demographic principles of trait formation into the backbone of genetic analyses, through appropriate mathematical models and statistical functions, and by incorporating genetic questions into a comprehensive framework of dynamic analyses of longitudinal data. In this paper we use Framingham Heart Study data from the original cohort to show how genetic factors are associated with age trajectories of physiological variables and other biomarkers. The approach allows for incorporating hidden biomarkers of aging into the stochastic process model of aging and mortality and evaluate age their age patterns fr om the data for individuals with different genetic background.

Description: Abstract for How Genes Modulate Patterns of Aging-Related Changes on the Way to 100: Lessons from Biodemographic Analyses of Longitudinal Data

Description: In addition to gender, age, period and cohort are three main risk factors considered in constructing mortality models. Other than these factors, it is believed marriage status is related to health and longevity. In this study, we use Taiwan’s marital data for the whole population to evaluate if marriage status can be a preferred criteria. In addition to checking if mortality rates vary for different marital statuses, we want to know if this preferred criteria will be valid in the future. We chose Lee-Carter and age-period-cohort models to model the mortality improvements of various marital statuses. Because of linear dependence in the parameters of the age-period-cohort model, we used computer simulation to chose the appropriate estimation method. We found the married have significantly lower mortality rates than the single and, if converting the difference into a life insurance policy, the discount amount is even larger than that for smokers/nonsmokers.

Description: The percentage of the population who are obese has grown dramatically worldwide over the last several decades, although stabilizing recently in the United States. Studies have found the effects on mortality to be inconsistent and controversial because of methodological differences and the complexity of the relationship between obesity and mortality. This paper discusses this relationship and sheds light on the likely effects of this epidemic. Issues associated with the so-called obesity-mortality paradox, where mortality experience is lower for those individuals who are overweight and in some who are obese compared with the mortality of those in the normal weight category, are examined. Although certain recently reported studies of the relationship between mortality and obesity indicate that obesity is related to a reduced percent of additional mortality, this may in part be due to the shorter average time that those currently obese have been exposed to their condition. Nevertheless, the amount of health care costs and rates of disability associated with being obese are significant, contributing to the increase in overall health care costs as they become more numerous and age. Although obesity is being addressed with a great deal of activity and publicity, they will continue to prove challenging for individuals and society to manage and overcome.

Description: Session 1 b discussion

Description: Over the last century, the assumption usually made was that causes of death are independent, although it is well-known that dependencies exist. Recent developments in econometrics allow, through Vector Error Correction Models (VECM), to model multivariate dynamic systems including time dependency between economic variables. Common trends that exist between the variables may then be highlighted, the relation between these variables being represented by a long-run equilibrium relationship. In this work, VECM are developed for causes-of-death mortality. We analyze the five main causes of death across ten major countries representing a diversity of developed economies. The World Health Organization website provides cause-of-death information over about the last 60 years. Our analysis reveals that long-run equilibrium relationships exist between the five main causes of death, improving our understanding of the nature of dependence between these com peting risks over recent years. It also highlights that countries had usually different past experience in regards to cause-of-death mortality trends and thus, applying results from one country to another may be misleading.

Description: Is Secondary Prevention of Alzheimer’s Disease Possible? A Discussion of Studies in the Alzheimer’s Disease Field

Description: The U.K. Pension Protection Fund (PPF) was established in April 2005 to protect the pensions of members of U.K. private sector defined benefit pension schemes that have insufficient assets and whose corporate sponsor fails. The Fund takes over the pension scheme assets and assumes responsibility for the payment of compensation to the former members of the scheme. The PPF is funded by a levy on the population of eligible schemes. To improve its ERM framework, the PPF has undertaken a reverse stress testing exercise. This analysis provided the organization with new insights into its risk profile, the scenarios leading to the PPF’s potential “failure,” and interactions between these scenarios. This paper discusses the principles and objectives of reverse stress testing in the special case of the PPF and then illustrates the application of complex system science techniques for the purpose of reverse stress testing.

Description: Individuals face many risks during different phases of their financial life cycle. These risks in turn have major financial implications on their wealth creation, wealth preservation and wealth distribution aspirations. Traditionally risk taking is viewed negatively in relation to the personal financial-planning domain. In fact, most of the studies linking risk management to personal financial-planning focus primarily on investment and insurance related risks. In contrast, enterprise risk management (ERM) takes a portfolio view of risks right from the personal level to the organization level. The existing literature on ERM is seen as an essential feature of corporate world and there is not much literature available that explicitly addresses the issue of aligning ERM framework to the whole spectrum of personal financial planning. In this backdrop, it seems logical to develop an in-depth study on aligning an ERM framework to a personal-financial planning domain. Accordingly, this conceptual paper, avoiding mathematical jargon, extensively examines the extent to which ERM can be aligned to the personal-financial planning domain. The Study concludes by suggesting how individuals should identify, aggregate, evaluate and address risks across the whole spectrum of personal financial planning domain

Description: Abstract: A model for analyzing the probability and severity of default of sovereign entities and banks. The methodology analyzes the risks inherent in the investment of debt of sovereign governments and large financial institutions side-by-side, taking into consideration macroeconomic interactions among the sovereign fiscal and monetary authorities, the financial institutions, and the real economy. The signature aspect of the methodology is that it adapts a Merton-style default model to use explicit measures of sovereign assets and asset volatility.

Description: In the current environment of global competition, the question of how much, and in what way, the enterprise risk management (ERM) function contributes to the creation of shareholder value will only increase in importance and urgency.

Description: Investment volatility can lead to unacceptable levels of contribution volatility and wide swings in a retirement plan’s perceived funded status. This paper approaches the volatility problem from a plan design perspective.

Description: The purpose of this paper is to explore pension plan metrics— – measuring the behavior of a defined- benefit pension plan in an uncertain environment. Our goal is to measure and evaluate the quantitative impact of competing policy choices. We proceed by investigating some basic pension metrics, evaluating the characteristics of each using a simulated pension plan. We find that some typical metrics— – such as the mean and standard deviation— – are useful only in certain circumstances and that other less traditional measurements are sometimes better suited to evaluating policy choices.

Description: The purpose of this paper is to explore pension plan dynamics— – the behavior of a defined- benefit pension plan over time in an uncertain environment. We proceed by simulating the behavior of a model plan in a stochastically varying economic environment. While both the model and its environment are simplified, the model displays interesting behavior suggesting policy considerations that should be included in the design and funding of these plans.

Description: The U.K. Pension Protection Fund (PPF) was established in April 2005 to protect the pensions of members of U.K. private sector defined benefit pension schemes that have insufficient assets and whose corporate sponsor fails. The fund takes over the pension scheme assets and assumes responsibility for the payment of compensation to the former members of the scheme. PPF is funded by a levy on the population of eligible schemes. The elements of the enterprise risk management of the fund have been developed by reference to practice within proprietary insurance institutions and other pensions funds; their application to this unique financial vehicle is the subject of this paper. The paper draws on references to relevant risk and actuarial work. It is designed to illustrate the application of principles and techniques to a real world example.

Description: Global financial crises like the one recently experienced, affected both large and small institutions.Today, when there is heightened need for enhanced risk management tools, some entities are unable to employ sophisticated mechanisms due to limited data availability. Moreover, from the Basel Committee on Banking Supervision’s point of view via Basel II and Basel III, the internal ratings- based (IRB) approach requires that institutions have some reliable estimates of default probabilities of default for each rating grade. Taking the work of previous researches a step further, this paper intends to propose a new dynamic mechanism to for the risk management industry for to calculateing probabilities of default (PD). Through these estimates for the core model, we generate implied probability of default (PD) through actuarial estimation tools and different probability distributions. This mechanism is specialized to work best for low- defa ult portfolios (LDPs). Furthermore, scenario testing is adopted to validate the model against any model- specific bias

Description: This paper demonstrates that extreme value theory (EVT) can be used as a tool to model policyholder behavior in the extreme tail. This paper applies EVT to the study of variable annuity dynamic lapse behavior in the extreme tail. It illustrates a process whereby a company can fully model policyholder behavior, including the extreme tail, with existing data. No judgment about the extremal behavior is necessary.

Description: This paper demonstrates the use of Quantile Regression in the development and understanding of conditional value at risk (VaR) models for enterprise risk management.

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: The paper discusses the arguments supporting the need for risk culture to transition into ERM culture to be embedded across financial organizations. Creating and maintaining strong ERM culture is paramount to a lasting and meaningful ERM program. It is essential for organizations to understand what ERM culture is, how it gets established and in what way affects the process of ERM implementation. Often, the implications of financial enterprises not focusing on the significance of ERM culture manifested in severely compromised ability to generate sustainable value and market competitive advantage. This paper calls for rethinking the role of ERM culture in the context of managing risks.

Description: The November complete issue of the Actuary of the Future newseltter.

Description: Actuaries should understand the economic considerations involved in the formulary drug decision-making process, and the presence of actuarial input in the process could improve it, especially by tying it to overall decision making for the health plan. From Prescription Drugs Monograph, M-HB04-1.

Description: April 2011 issue of the Technology Section newsletter, CompAct

Description: 2011 Enterprise Risk Management Symposium, Chicago. This study investigates whether simulation-based models can be used to predict liquidity risk for banks, which must comply with Basel III by January 2015. The paper looks at the process of developing a measurement framework using Black-Scholes and Merton’s asset-based models to measure liquidity risk.

Description: 2011 Enterprise Risk Management Symposium, Chicago. This paper uses a case-study research design looking at two companies: Infosys and Rolls-Royce Corp. The goal of the research is to develop an explanation of how ERM brings about the strategic implications or its “promise” as it is popularly known in the ERM circle. The influential factors and how they are linked to the ERM process of achieving strategic implications are highlighted.

Description: 2011 Enterprise Risk Management Symposium, Chicago. This paper starts by defining and discussing the nature of risk and its primary relationship to capital preservation. The paper then continues with a guide for implementing a company’s risk appetite statement for a variable annuity product.

Description: 2011 Enterprise Risk Management Symposium, Chicago. This paper explores cognitive and behavioral theories that can be applied to explain why emerging risk is often overlooked, downplayed or ignored. It also proposes an innovative framework for managing emerging risk within an overall enterprise risk management program.

Description: This monograph was presented at the 2011 Enterprise Risk Management Symposium, held March 14-16 in Chicago. The author, writing from a property-liability insurance perspective, notes that capital allocation is a theoretical exercise because all of a firm’s capital could be depleted to cover a significant loss arising from any one segment. However, firms do need to allocate capital for pricing, risk management and performance evaluation. In this paper, the cost of capital in financial markets is incorporated into the Ruhm-Mango-Kreps algorithm to yield one allocation that reflects the true cost of capital an insurer would face.

Description: 2011 SOA Enterprise Risk Management Symposium, Chicago. The stated purpose of this paper is to consider whether a more comprehensive and timely measurement framework for risk exposure is now needed and to examine one possible approach. This paper proposes a new approach to risk measurement that, along with capital measurement and more rigorous oversight, will allow banks an ability to manage risk.

Description: 2011 Enterprise Risk Management Symposium, Chicago. This is the abstract of the entitled paper.

Description: 2011 Enterprise Risk Management Symposium, Chicago. This paper highlights the impact that a change in conditional data would have on a variety of risk assessment models, with specific emphasis on investment forecasting.

Description: 'This paper looks at the issue of the timing the commencement of income annuities from the perspective of a real life client scenario.' From the 2011 Enterprise Risk Management Symposium, March 2011.

Description: Risk management theory prescribes a few legitimate reasons for management to hedge corporate revenues and reduce income volatility. In this paper we will use the oil tanker industry to illustrate some of these strategic considerations and how management can account for them in their decisions regarding whether and how much to hedge. Further work is needed to incorporate these considerations into a broader theoretical framework. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.

Description: Actuaries have traditionally recognized the links between risk and value, and in recent years have begun to incorporate aspects of modern financial economic theory into their traditional valuation and risk management approaches. As a result, there has been an increasing trend in the incorporation of explicit market-based risk adjustments into valuations, whether for internal or external purposes. The use of market-based metrics to reflect risk in valuations is becoming increasingly widespread—in fact, major external standard setters, including FASB, IASB, CFO Forum and the various parties setting standards for Solvency II, have prescribed varying levels of use of market-based metrics to measure risk in valuations. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.

Description: Contemporary ERM has moved from an event-based view of risk to a hierarchical, systems-based approach. In order to operationalize such an approach, a methodology is proposed in this paper that draws on phylogenetic approaches that have been successfully developed for biological evolution. The technique and process provide an insight into the lineage, pace and impact of external conditions on the evolution of risks. They also provide a unique and rational classification of risk in an enterprise that can be used to optimize risk management resources. An example of a fictitious insurance company is used to illustrate the approach. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.

Description: This paper develops an option pricing model that takes cost of capital concepts as its foundation rather than dynamic replication. The resulting model, called the 'C' measure in this paper, is related to the family of Affine Jump Diffusion models that are well known in the finance literature, so it is fairly easy to understand and implement. We argue that this is a reasonable model to use for estimating equity implied volatilities that are beyond the five- to 10-year horizon that can typically be observed in today‘s capital markets. The paper concludes with a short discussion of how to grade from observable market data to the 'C' measure.

Description: The paper argues that Risks Evaluation at its core is a psychological process that can lead to the special type of chaos described in modern Chaos Theory. It will argue that quantification and scientific modeling does not exempt risk assessment from the potential for deep biases. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.

Description: A new reason for the inherent instability of the insurance business can be found in the literature of anthropology. The theory of plural rationalities, also known as Cultural Theory of Risk or simply Cultural Theory, posits that the world is populated by people with four fundamentally different attitudes toward risk. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.

Description: This paper introduces a minor modification to the Wacek framework that restores market consistency and additivity. The modification shifts the basis of the cost-of-capital risk margin embedded in the fair value loss reserve from an insurer’s own solvency capital requirement with respect to its claim obligations as prescribed by Solvency II to the required market-clearing capital implied by those obligations, which depends not only on the internal characteristics of the unpaid claim portfolio but also on its correlation with the total market portfolio of unpaid claims.

Description: In this Chapter we present a novel way for estimating aggregated EC figures based on Bayesian copula estimation. Contrary to the classic approach of using a single inter-risk- correlation matrix we derive a probability distribution of possible correlation matrices that enables us to tackle the important issue of parameter uncertainty. Presented at 2010 Enterprise Risk Management Symposium, Society of Actuaries, April 12-15, 2010.