Description: This paper advocates asset/liability management for pension plans. It identifies the economic factors that influence the economic value of liabilities and discusses the typical asset portfolio that results.

Description: This paper defines Distributable Earnings as the generalized pricing and valuation framework for financial contracts containing the requirement to hold capital or reserves in support of the obligations. It examines the Market Value paradigm and its foundation arising from the pricing of fixed income securities. It reconciles these two methods, showing that market value methods ignore mandatory capital and reserve requirements, which carry both risk and cost. The paper makes the case for the Distributable Earnings framework, not Market Value, as the true basis for economic value for these financial contracts. Finally, it concludes that this framework must be employed in risk-management processes, else fail to recognize a significant source of risk.

Description: Study of the Effect of a Flu Pandemic on Economic Values Using the Delphi Method

Description: Congress once again turns to defined benefit pension plans as a misguided source for financing programs that have nothing to do with retirement.

Description: This article discusses a good way for insurance companies to calibrate economic capital (tail risk level) that is consistent with the market opinion on its risk. It also establishes a bridge between a risk neutral evaluation and a real world evaluation.

Description: Article from Pension Section News, May 2007, No. 64, discusses the expectations of a pension plan. When people get what they expect, they are happy. When people do not get what they expect, they get upset. A lot of Americans are upset today with their retirement plans. The Financial Accounting Standards Board FASB and Congress are taking action, but their actions may create more problems than they solve. Underlying everything is a substantial disconnect between rule-makers and the public. The public has a more simplistic view of a retirement plan than rule-makers do. Rule-makers need to keep in mind the simplistic way ordinary people think of a retirement plan.

Description: Obsolescence of physical assets and processes is a major component of operational risk for some companies. A simulation experiment shows that managers, who consider the retirement and replacement of individual assets in isolation, have rational incentives, due to risk aversion and uncertainty, to defer the replacement of assets past a time that is optimal from the perspective of the shareholder who owns the entire portfolio of such assets. This results in measurable wealth destruction, —and a demonstrable opportunity to significantly enhance a company’s value. A practical decision model for the replacement timing of fixed, physical assets, which creates wealth by minimizing the long-term consumption of scarce resources, is provided.

Description: Insurance company financial reporting and performance measurement are going through a significant transformation. Insurers are beginning to look at their business based on what many refer to as the “economic value framework.” Under this framework insurance companies determine the economic value of the capital invested in their business and the economic value of earnings to derive a risk-adjusted return on capital. Standard setters, primarily European insurance regulators through Solvency II and the International Accounting Standards Board through IFRS Phase II, propose adopting many of these concepts for solvency and performance reporting.

Description: This article looks at EVA calculation, its various issues and how it can be used to better manage a company. From Society of Actuaries Financial Reporting Monograph, M-AS99-1.

Description: Feature article describing a new method of computing professional athletes’ salaries using actuarial skills/ the economic value concept. From The Actuary Magazine, Dec 2009