Description: The paper will focus on two broad areas, integration of insurance products with investment products to mitigate the risk of outliving one’s assets in post-retirement financial planning. Modeling and pricing for the longevity risk in the secondary market in insurance.

Description: This paper develops the binomial version of the Lee-Carter model and provides a comparative study of simulation strategies for assessing risk in mortality rate predictions and associated estimates of life expectancy and annuity values in both period and cohort frameworks.

Description: This paper evaluates the current practice of operational risk management in the insurance sector. Operational risk is nothing new in insurance, but, because of regulatory requirements, companies have initiated computation of risk capital for their operational losses. The current effort to manage operational risk is not a naturally evolving phenomenon, and operational risk, in the Basel Committee on Banking Supervision’s Basel II definition, is unlikely to be a significant cause of insurers’ failure. In addition, the current Basel II definition of operational risk is not suitable for the insurance sector. Consequently, the invention of models and tools based on the definition is incomplete and illusionary. My findings are based on the analysis of dozens of interviews with insurance industry professionals. I demonstrate the way operational risk is quantified in practice, show that the result obtained from this computation is of littl e use in managerial decision making and propose a set of policy recommendations illustrating the characteristics of operational risk in insurance. This study can be used as a platform for launching dialogues to initiate fresh thinking about operational risk in insurance beyond the current artificial and narrow boundaries.

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: Abstract: 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: Interest rate changes and volatile equity returns have contributed to significant funding and expense volatility for defined benefit plans in recent years. This paper will describe the design of an option contract with payouts that are tied to the combined impact of interest rates and investment returns on the funding level of a defined benefit pension plan. Current derivatives used by plan sponsors can limit exposure to one of these risks; however, a derivative that combines these risks may provide more targeted protection to a plan sponsor at lower cost. This paper discusses several considerations in designing such a derivative. It will also briefly discuss pricing of the option. Finally, the difference in potential outcomes between plan funding with and without option ownership will be demonstrated. As an outcome of the design work, a new way to visualize pension risk that may be useful in sponsor accounting disclosures will be shown.

Description: The abstract for the paper Rationalizing the Security and Ultimate Delivery of Promised Private Retirement Plan Benefits: The Missing Asset

Description: Abstract of Managing Volatility in a Mark-to-Market World: The Stochastic Funding Method presented at The Future of Pension Plan Funding and Disclosure Symposium held July 14-15, 2005 in Washington, DC.

Description: Development of annuities markets is a critical element of any private system. In Mexico, when the new pension regimen came into existence in 1997, the Mexican Institute of Social Security [IMSS] was supposed to buy a single premium annuity for all the people who become eligible under the new regime. Disability pensions represent 37% of total pensions sold up to date. Mortality of disables show substantial differences against the mortality table use to compute the annuity. Most of the differences can be explained by looking at the disability causes. Using information for social security for 2001 and 2002, regarding mortality and disability, this is the abstract of a paper that presents the main causes of disability among disables and the main causes of mortality of those disables who died in their first and second year of disability. The analysis of those cases apart from explaining the important differences between the expected mortality and the observed mortality during the first two years of disability, also explains some of the latter changes in the operational rules of IMSS.