Description: Economic capital models are getting increasingly complex. An alternate copula free approach is presented which uses accounting data and an implicit correlation model to simplify economic capital calculations. Model simplification leads to robust and stable models. A banking case study is used to showcase how the model can be deployed using publicly available accounting data, capital adequacy, leverage ratios and shortfall tools.

Description: This is a concluding and encompassing part of our research on the project entitled \Weighted Premium Calculation Principles and Risk Capital Allocations, which has been supported by the Actuarial Education and Research Fund AERF and the Society of Actuaries Committee on Knowledge Extension Research CKER. We explore the concept of weighted distributions and their role in various phenomena occurring in insurance and finance. In particular, we relate weighted distributions to actuarial and economic premium calculation principles, and also to the capital asset pricing model CAPM. Imitating the latter, we propose a weighted insurance pricing model WIPM. Although general in formulation, we show that the WIPM can successfully be evaluated in a variety of situations, which we illustrate with a number of examples.

Description: This is a presentation from 39th Actuarial Research Conference, 8/5-7/2004, University of Iowa in Iowa City, Iowa. The aim of this paper is to consider economic capital for a multi-line insurer and the fair allocation to lines of business. In addition, this paper also allows for a model with assets, liabilities and insolvency exchange option fairly priced, complete markets and no market frictions.

Description: The article talks about market consistent pricing, how risk neutral pricing and real world pricing are not fundamentally different if used appropriately. And using that knowledge, a rather new concept called the risk-adjusted real world pricing, which is a method where a mixture of risk neutral and real world pricing to achieve a holistic view on pricing, will be introduced.

Description: Economic capital models are getting increasingly complex. An alternate copula free approach is presented which uses accounting data and an implicit correlation model to simplify economic capital calculations. Model simplification leads to robust and stable models. A banking case study is used to showcase how the model can be deployed using publicly available accounting data, capital adequacy, leverage ratios and shortfall tools.

Description: Describes how the mantra of 'tax cuts will pay for themselves" along with the political unwillingness to cut spending (extant since the 1980s), has led to this increasing debt problem in the U.S., reaching $17 trillion at time of writing. Other countries are behaving in a similar fashion, and it can be only a matter of time before the globe may reach another crisis, this time based on excessive government debt coupled with fewer interested investors.

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: The authors introduce an alternative to Tail Contribution Analysis TCA for analyzing business segments and strategies called Economic Profit Analysis EPA. They 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, they illustrate the benefit of using EPA in overcoming the problems of TCA and thereby providing concise reliable information for business decision making.

Description: Feature article discussing how insurers have reflected volatility in asset return assumptions when determining capital requirements, but have largely disregarded the impact of mortality volatility on their liability assumptions when performing stochastic analysis.

Description: This article discusses the global capital standards for Global Systemically Important Insurers (G-SIIs) and Internationally Active Insurance Groups (IAIGs) currently being developed by the International Association of Insurance Supervisors (IAIS).