Transcript Update on CAS Working Parties

Update on CAS Working
Parties
Midwest Actuarial Forum
September 29, 2006
Leslie R. Marlo, FCAS, MAAA
Agenda
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What is a “working party”?
Completed Working Parties
Current Working Parties
Objectives
 Timeframes
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http://www.casact.org/research/index.cfm?fa=workingparty
What is a working party?
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Task force focused on a specific research topic
or solution to a specific problem.
Team approach.
Critical mass
 Broad knowledge base
 Elicits discussion
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Motivated and created by research committees.
Instead of or in addition to call paper programs.
What is a working party?
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Deliverables
White Papers
 Literature Surveys – existing research
 Studies of industry experience related to a specific
topic, perhaps with specific data calls.
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Completed Working Parties
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Correlations and Dependencies Among All Risk
Sources
Executive Level Decision Making Using
Dynamic Risk Modeling
Elicitation and Elucidation of Risk Preferences
Quantifying Variability in Reserve Preferences
Risk Transfer Testing
Completed Working Parties
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Correlations and Dependencies Among All Risk
Sources
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Sponsored by Enterprise Risk Management Committee
Goal: laying the foundation for quantifying variability when
data is limited, estimating the nature and magnitude of
dependence relationships, and generating aggregate
distributions that integrate these disparate risk sources.
http://www.casact.org/members/committees/index.cfm?fa=
corr_wp
Completed Working Parties
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Executive Level Decision Making Using
Dynamic Risk Modeling
Sponsored by Dynamic Risk Modeling Committee
 Goal: give practicing actuaries help in developing
effective DRM presentations for senior
management.
 Series of written guidance and presentation
templates, available at
http://www.casact.org/research/drmwp/
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Completed Working Parties
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Elicitation and Elucidation of Risk Preferences
Sponsored by CAS
 Goal: survey of methods in use to elicit risk
preferences in management, for use in ERM policy.
 http://www.casact.org/pubs/forum/05fforum/05f0
1.pdf
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Completed Working Parties
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Quantifying Variability in Reserve Preferences
Sponsored by CAS
 Goal: survey of historical research relating to
estimation of potential variability in ultimate losses.
 http://www.casact.org/pubs/forum/05fforum/05f2
9.pdf
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Completed Working Parties
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Risk Transfer Testing
Sponsored by Committee on Reinsurance
 Goal: provide suggestions on definition and testing
of “risk transfer” in reinsurance transactions; at the
request of the Casualty Actuarial Task Force of the
NAIC.
 http://www.casact.org/research/risk-transfer-wpreport.pdf
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Current Working Parties
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Data Management & Information Educational
Materials
Loss Simulation Model
Dynamic Risk Modeling Handbook
Public Access DFA Model
Tail Factors
Bornhuetter-Ferguson Initial Expected Losses
Joint GIRO – CAS ERM Guidance Note for General
Insurers
Current Working Parties
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Data Management & Information Educational
Materials
Sponsored by Committee on Management Data &
Information
 Completion: late 2006
 Goal: Identification of key educational resources on
data for actuaries =>>> literature survey
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Current Working Parties
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Data Management & Information Educational
Materials
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Status:
Finalized taxonomies and abstracts of 8 texts for CAS
online database; one additional text to be finalized.
 Prepared 9 book reviews with draft of the reviews for
Winter Forum; draft to be finalized.
 Preparing presentation of work for Annual Meeting.
 Drafting overview paper on data management
synthesizing knowledge gained from literature survey. May
end up on Part 5 syllabus.
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Current Working Parties
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Loss Simulation Model
Sponsored by Dynamic Risk Modeling Committee
 Completion: early 2007
 Goal: Creation of a simulation model for generating
claims (individual and bulk) for summarization into
loss development triangles.
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Current Working Parties
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Loss Simulation Model
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Goal (cont’d)
Data to be generated by layer, type of information (e.g.
paid vs. incurred), hazard, line of business
 Goal is not to focus on actual testing but to generate data
sets for future testing. Includes development of criteria
for assessing various methods/models for future research.
 Includes evaluation of simulated data to ensure it is
realistic, i.e. not distinguishable from real data sets.
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Current Working Parties
Loss
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Simulation Model –Key Model Features
Observation Period
Time Intervals
Exposures
Events
Distributions
Frequency
Report Lag
Payment Lag
Inter-valuation waiting times
Adjustment Lag
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Size of Loss
Case Reserve Factor
Fast-Track Reserve
Second-Level Distributions
Monthly Vector of Parameters
Trend, Seasonality
Lines and Loss Types
Correlations
Clustering
Output
Current Working Parties
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Loss Simulation Model
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Status:
Prototype model has been developed.
 VBA programming of model to be completed by end
2006.
 Programming in at least one additional language in 2007.
 Minimal generation of data for testing of model to date;
expected during 2006.
 Testing completed and report written in 2007.
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Current Working Parties
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Dynamic Risk Modeling Handbook
Sponsored by Dynamic Risk Modeling Committee
 Completion: late 2006
 Goal: Preparing a re-write of the existing Dynamic
Financial Analysis Handbook.
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Includes addition of introduction and practical examples.
Current Working Parties
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Dynamic Risk Modeling Handbook
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Chapters:
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One – Introduction
Two – Overview of DRM Process
Three – Strategies
Four – Scenarios
Five – Asset Modeling
Six – Price Modeling
Seven – Reserve Modeling
Eight – Performance and Risk Measure
Nine – Coherent Measures of Risk
Ten – Presentation of DRM Results
Glossary of Terms
Current Working Parties
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Dynamic Risk Modeling Handbook
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Status:
Most chapters, plus glossary of terms, in process of being
finalized.
 As finalized, chapters being placed on DRM website.
 Chapters on Reserve Modeling and Pricing Models still
need significant work.
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Current Working Parties
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Public Access DFA Model
Sponsored by Dynamic Risk Modeling Committee
 Completion: late 2006 (phase 1)
 Goal: Phase 1 involves updating and enhancing
current public access DFA model documentation.
Phase 2 involves improving model components and
evolving model into open source framework.
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Current Working Parties
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Public Access DFA Model
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Current Model
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Interest Rate and Inflation Generator
Investment Module
Pricing
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Underwriting Cycle
Jurisdictional Cycle
Loss Development and Payment Patterns
Catastrophe Module
Taxation
Financial Statement Development
Output
Current Working Parties
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Public Access DFA Model
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Documentation
Brief description of module (what it does, interrelation
with other components)
 Current Strengths
 Current Weaknesses
 Potential Enhancements
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Additions / Deletions
Changes to interrelations
Assessment of importance of each suggested enhancement.
Current Working Parties
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Public Access DFA Model
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Status:
Documentation to be completed by late 2006 (after
Annual Meeting).
 Fully documented model will be posted to CAS website.
 Next step will be to solicit additional modules – likely
through a call paper program (driven by Dynamic Risk
Modeling Committee).
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Current Working Parties
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Tail Factors
Sponsored by Committee on Reserves
 Completion: late 2006
 Goal: Survey existing literature and identify
additional methods in use, with goal of educating
students and practitioners
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Current Working Parties
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Methods under Consideration
Bondy-Type
 Algebraic
 Benchmark
 Open Claims
 Curve Fitting
 Lifespan
 Miscellaneous
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Current Working Parties
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Tail Factors
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Status:
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Documentation of methods in progress, organized by type:
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Preparation of standard notation in progress:
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Mechanics of each method;
Examples of each method;
Results of testing and surveys;
Started with notation from Reserve Variability Working Party;
Consistent notation desired;
Additional notation being added as necessary.
Consideration of areas of future research
Current Working Parties
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Bornhuetter-Ferguson Initial Expected Losses
Sponsored by Committee on Reserves
 Completion: unknown
 Goal: Produce secondary research on effectiveness
of initial expect loss methodologies already in use,
for education of students and practitioners.
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Current Working Parties
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Methods under Consideration
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Price Trend Rollforward – several versions varying the point
at which losses are rolled forward from
Stanard-Buhlmann/Cape Cod – original and Gluck’s version
Benktander
Frequency/Severity
Least Squares Regression
Excess Ratio of 1st dollar expected losses
Grace’s Method for Salvage and Subrogation
Current Working Parties
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Bornhuetter-Ferguson Initial Expected Losses
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Status:
Literature survey and survey of methods in use
throughout industry completed in 2005.
 Groundwork prepared for evaluating various
methodologies.
 Various “principles” relating to soundness of use of initial
expected losses have been debated.
 Working party currently at a crossroads – Is the
information to be produced valuable? Is it appropriate for
a working party?
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Current Working Parties
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ERM Guidance Note for General Insurers
Sponsored jointly by GIRO and CAS
 Completion: unlikely but may be revived at
upcoming GIRO meeting
 Goal: Produce advisory note relative to ERM and
general (property/casualty) insurance.
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Feedback
 Questions
/ Comments
 Areas of Future Research?
Casualty Actuarial Society
4350 N. Fairfax Drive, Suite 250
Arlington, Virginia 22203
www.casact.org