Description: Model Risk Management continues to be an evolving area for insurers to be considering. This has grown from both internal and external forces and may require a different format to previous model risk frameworks held by insurers. Furthermore, there are a number of trends emerging that we believe will drive an increased focus on insurer’s model risk management frameworks such as technology automation, ever increasing data sources, and the use of predictive models. Risk management and the development of models is an area where insurance companies have performed well in the past. It is expected that frameworks currently exist within companies; the governance, documentation, validation and control of model risk are likely to be well established practices. The challenge that insurers must consider is how well these have been adopted throughout the company for all models used to make business decisions and if the same level of rigor has consistently been applied. Regulation in a high-velocity actuarial environment will to be a challenge that actuaries must spearhead and must be proactive in guiding rule making to ensure continued innovation while putting data security and risk management first.

Description: Duration matching is a risk management strategy, commonly used in the insurance industry, where the duration (price sensitivity to a yield curve movement) of an asset portfolio is adjusted to be made equal to the duration of the liability. However, this approach has flaws. In this essay, I note some key failures of duration matching and offer a potential alternative.

Description: The article introduces a cashflow matching strategic asset allocation (SAA) framework for life insurers. Given the recent shift to higher interest rates after two decades of persistent low interest rates, insurers have an opportunity to enhance their asset liability management by rebalancing asset portfolios to narrow duration gaps and attain higher risk-adjusted yields. The framework aims to align investment objectives with economic, regulatory, and rating agency requirements. It prioritizes cashflow matching as the primary optimization goal and incorporates security-level asset information to assist portfolio managers in executing SAA seamlessly. The article highlights the benefits of the cashflow matching SAA framework, including greater attention to cashflow matching, unbiased results, readily executable strategies, and stable economic reserves. A case study is included to demonstrate the effectiveness of the framework in improving risk-adjusted return and cashflow matching for a representative liability block.

Description: Summary of recent surveys to life actuaries regarding assumptions surrounding policyholder behavior in the tail for universal life with secondary guarantees and minimum guarantees on variable annuities. This information is intended to examine and ultimately give guidance to actuaries on how to set policyholder assumptions in extreme scenarios.

Description: This paper presents an algorithm for approximating the probability of ruin for a Poisson process - which is often used to model an aggregate claims process.

Description: This paper cautions against using expected utility theory for measuring insurance risk, because of the numerous inherent difficulties associated with it. Instead, an approach for loading gross premiums that is based on risk-measure functions is explored. Discussions of this paper are included.

Description: The academy generator is widely applied in actuarial practice. Initially confined to regulatory reserving, companies are increasingly using the AAA/SOA generator over an ever widening range of applications testing the limits of the academy generator's intended function. The session will give a brief overview of the academy generator and the asset classes it can be used to model. It will also analyze the statistical properties of the academy scenarios and discuss the scenarios relative to standard validation criterion. Some of the challenges that actuaries face in using this framework will be reviewed and options for addressing these challenges will be offered.

Description: Presented at June 1996 Spring Meeting. Inability to quantify the volatility in individual disability income insurance is one of the key reasons for loss experiences in the industry. Discussion covers: volatility measures for reserving, application of reserve adequacy criteria under various plan designs, application of volatility measures to pricing, and a test of the effectiveness of volatility measures.

Description: This paper presents the probabilistic concepts underlying measurement of asset adequacy in a simplified way. Discussions of this paper are included.

Description: This dissertation by Tia Sawhney will help you understand this issue and start measuring it, or start promoting equitable public policy.