The area of financial risk management (FRM) has seen a significant increase in interest and activity during the last couple of years, resulting in an increase in the number of new types of financial products being offered. The general session will discuss this growth and FRM's present state of affairs. Speakers representing academia and insurance/financial products add knowledge and their insights into this relatively new and exciting area of finance.
Moderator: Gary R. Josephson, FCAS, MAAA, Milliman & Robertson, Inc.
Panelists: Cliff Smith, University of Rochester
Joseph W. Wallen, FCAS, MAAA, Gen Re New England Asset Management
J. Scott Bradley, Ph.D., FCAS, MAAA, FCIA, Swiss Reinsurance Company
Basic Track Sessions
Basics of Financial Risk Management
This session provides an overview of financial risks and an introduction to the tools available in the capital markets to address those risks. The session begins by answering the question, "Why do we want - or need - to manage financial risk?" The increased significance and volatility of interest rates, foreign exchange rates, and commodity prices are demonstrated with historical statistics and their potential impact on a firm's value and operations are discussed. Then, participants are introduced to the financial securities which have been developed to handle these risks - specifically, forwards, futures, options, and swaps. Examples of how these instruments are used to hedge risks are provided.
Panelist: Rick Gorvett, Ph.D., FCAS, MAAA, ARM The College of Insurance
Basics of Insurance Securitization
One of the most exciting trends in the insurance industry recently has been the development of instruments designed to allow for the trading of insurance risks in the capital markets. This session provides an overview of the insurance securitization trend. Included is a discussion of the background and essential process of insurance securitization, and descriptions of the forms and structures of several types of transactions that have occurred or been proposed. Examples of insurance securitization tools that have been developed include catastrophe bonds and catastrophe equity puts.
Panelists: Ron Keenan American Re-Insurance Company
Andrew Rippert, FCAS, MAAA American Re-Insurance Company
Although insurance derivatives were first proposed some twenty-five years ago, the idea was actually implemented only recently. This session describes the insurance derivatives being offered by the major financial exchanges. In particular, the session provides information on the current offerings - and possible future evolution - of insurance derivatives on the Chicago Board of Trade and the Bermuda Commodities Exchange. Included are discussions of critical issues such as catastrophe indices (e.g., Property Claims Service and Guy Carpenter indices used by the CBOT and the BCE, respectively), basis risk, moral hazard, and credit risk.
Moderator: Chris M. Suchar, FCAS, MAAA Milliman & Robertson, Inc.
Panelists: Bruce Thomas IndexCo, LLC
Gary Kerney, AIC, RPA American Insurance Services Group
Reinsurance, Financial Reinsurance, and Alternative Risk Transfer And Financing Mechanisms
Financial risk management techniques available to insurers include not only various capital market securities, but also more traditional insurance tools. This session examines the use of reinsurance and financial reinsurance as a financial risk management tool, and how they are being impacted by the evolving insurance securitization process. The session also provides an overview of alternative risk transfer and financing mechanisms, and how these techniques fit into the overall financial risk management framework.
Panelists: David B. Powell Swiss Reinsurance America Corporation
Christy L. Simon, FCAS, Fireman's Fund Insurance Companies
Recent Trends in the Transfer of Capital Market Risk to the Reinsurance Sector
Most of the insurance and financial press has focussed on the transfer of insurance risk to the capital markets and the disintermediation of insurance companies, reinsurance companies, and brokers. However, the transfer of risk in the other direction - from the capital markets to the reinsurance market - is increasing more rapidly but gets much less attention.
This session will focus on the capital risks being transferred to the reinsurance market, the factors contributing to this trend, and the future of combined insurance and financial risk products including duel trigger covers and income statement covers.
Examples of recent transactions will also be discussed.
Panelists: J. Robert Bredahl, E.W. Blanch Capital Markets, Inc.
Thomas A. Orofino, Asset Guaranty Corporation
Thomas C. Toce, FCAS, MAAA, Enterprise Advisors, Inc.
Basic Track Capstone Session: A Case Study
This session involves a theoretical and participatory case study which will allow the participants to apply financial risk management concepts in a realistic environment. A case company is presented, and the risks to which the company is exposed are identified. Then, appropriate financial risk management techniques are discussed and considered. This session is intended to be an interactive case study, which helps participants to summarize the issues presented in other Seminar sessions.
Moderator: Glenn Meyers, Ph.D., FCAS, MAAA Insurance Services Office, Inc.
Pricing of Integrated Products
As these new multiline, multiyear insurance products are still in their infancy, pricing techniques are still in the developmental stages. This session will examine some of the complex business issues nested within the pricing of these new products, which may include:
- Are different pricing measures of profitability needed?
- Can hedges be found in these expanded products?
- Are hidden costs lurking in these new programs?
- How is the covariance between lines of business reflected?
- What about the portfolio effect and limits compression?
Panelists: Nathan J. Babcock, ACAS, MAAA, Deloitte & Touche LLP
Edmund S. Scanlon, FCAS, Zurich-American Specialties
Program Designs and Pricing Options for Integrated Risk Policies
This session will offer detailed insights from differing perspectives on the structure and design of Integrated Risk programs. A brokerage industry professional will discuss various program structures and pricing mechanisms, and discuss how to evaluate these structures once pricing is known. A commercial underwriter will address the risk issues associated with pricing, and discuss the major reasons for the renewed interest in multi-year/multi-line policies within the industry. Certain non-traditional types of integrated products will also be discussed within this session.
Moderator: William F. Dove, FCAS, MAAA Centre Solutions
Panelist: John W. Gradwell, ACAS, Guy Carpenter & Company, Inc.
Market Environment for Integrated Risk Policies
This session will explore the current state of the market for Integrated Risk Policies. How many and what types of programs are being quoted and written? What are risk managers looking for in these products? To what extent are programs including non-traditional insurance risks available? What barriers exist to growth of these products, as still only a limited number of deals have been done?
Panelist: Christopher Haarmann, Zurich Corporate Solutions
Innovative Approaches to Managing Financial Risk
In this session participants will learn how the concept of "holistic" financial risk management is implemented in diversified financial services companies. Topics include:
- Implementing Enterprise Risk Management within a Diversified Financial Conglomerate
- Integrated Risk Management Solutions for Insurers
Panelists: Christopher M. Lewis, Ph.D. Ernst & Young LLP
Larry Berger, Ph.D. Swiss Re New Markets
Tools Necessary to Implement Financial Risk Management Practices
In this session participants will be exposed to the tools used to successfully manage financial risk. Topics include:
- What is Value at Risk and is it appropriate for Property/Liability Insurers?
- Enterprise Risk and Capital Management
- Use of a DFA Model to Identify and Evaluate Asset Liability Portfolio Hedging Strategies - A Case Study
Panelists: Neil D. Pearson, Ph.D. University of Illinois at Urbana-Champaign
Joseph W. Wallen, FCAS, MAAA Gen Re New England Asset Management
Robert F. Conger, FCAS, MAAA, FCIA Tillinghast - Towers Perrin
Reporting and Oversight Issues
This session will highlight the reporting and oversight concerns that have arisen as a result of the increased use of sophisticated risk management practices in the insurance industry. Topics include:
- Moody's Perspective on Modern Insurance Risk Management Strategies
- A Review of FAS Statement 133 - Accounting for Derivative Instruments and Hedging Activities and its Impact on the Property/Liability Insurance Industry
Panelists: Alan Murray Moody's Investors Service
Greg McCray Ernst & Young LLP
Academic Research Session I
- Corporate Risk Management and Insurance
- Integrated Risk Management and the Role of the Risk Manager
- Tests of Foreign Currency Models Used in the Financial Management of Insurance Company Operations
Moderator: Richard D. Phillips, Georgia State University
Panelists: Richard D. MacMinn, Ph.D. The University of Texas
Robert E. Hoyt, Ph.D. University of Georgia
Samuel H. Cox, Ph.D., FSA Georgia State University
Academic Research Session II
- Financial Risk Management in the Insurance Industry
- The Demand for Reinsurance: Theory and Empirical Evidence
Moderator: Richard D. Phillips, Ph.D., Georgia State University
Panelist: James R. Garven, Ph.D., Louisiana State University
Financial Risk Products
This session presents case studies of two leading-edge companies who are offering securitized risk products as part of their services to clients. Each case study will present the inside perspective of a securitization deal, including the pros and cons of various alternatives entertained, the considerations which led to the chosen solution, and the process they underwent to execute the securitization deal.
Panelists: David Moran, Swiss Re New Markets
Joseph M. Fedor, CPCU U.S. RE Corporation
Buyers' View of the Financial Risk Products
This session presents case studies of two leading-edge companies who have purchased securitized risk products to handle a part of their own catastrophe exposures. Each case study will present the inside perspective of a securitization deal, including the pros and cons of various alternatives entertained, the considerations which led to the chosen solution, and the process they underwent to execute the securitization deal.
Panelists: Rhonda K. Aikens, FCAS, MAAA United Services Automobile Association
Frank D. Pierson, FCAS, MAAA Centre Solutions Group TBD