Casualty Actuarial Society

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Request for Research Proposals for Capital Assets Pricing Model (CAPM) Modifications Appropriate for Insurance Companies

07/22/2015 —

  1. Casualty Actuarial Society (CAS)
    The CAS was organized in 1914 as a professional society with the purpose of advancing the body of knowledge of actuarial science applied to property, casualty and similar risk exposures. This is accomplished through communication with the publics affected by insurance, the presentation and discussion of papers, attendance at seminars and workshops, collection of a library, research, and other means. The membership of the CAS includes over 4,000 actuaries employed by insurance companies, industry advisory organizations, national brokers, accounting firms, educational institutions, state insurance departments, the federal government, and independent consultants.
  2. Committee on Theory of Risk (COTOR)
    The Committee on Theory of Risk is charged with developing and demonstrating the utility of specific applications of the theory of risk to various lines of property and casualty insurance. The COTOR is sponsoring this research on behalf of the CAS.
  3. CAS Interest in the Subject
    The CAS wishes to modify the CAPM for use in insurance pricing. In particular, these modifications should reflect the impact of disasters on the performance of the CAPM.
  4. Research Problem Description
    The principal objective of this consulting project is to modify the CAPM for use in insurance pricing. In particular, these modifications should reflect the impact of disasters on the performance of the CAPM. Recent financial literature introduces a disaster component into the CAPM, to reflect occurrences of economic downturns and other company-specific issues. Potential extensions of these theories for Property Casualty insurance companies could include the difference between short-tailed and long-tailed lines of business as well as the interaction of natural disasters and company reinsurance programs.
  5. Project Requirements
    The consultant shall propose to provide certain services to the CAS to produce a research document discussing modifications to the CAPM appropriate to reflect the operations of Property Casualty Insurance Companies. COTOR would like to issue an RFP to that effect for a fee not to exceed $25,000.

    Recent References:
    Tsai, Jerry and Jessica Wachter, “Disaster risk and its implications for asset pricing”, Prepared for the Annual Review of Financial Economics, January 2015
    Bai, Hang; Kewei Hou, Howard Kung, Lu Zhang; “The CAPM Strikes Back? An Investment Model with Disasters”, NBER Working Paper No. 21016, March 2015

    Project Schedule (Details negotiable)
    July 22, 2015 - Publish RFP
    August 24, 2015 - Review Plan and Qualifications due from Proposers
    September 16, 2015 - Final selection of research team
    October 20, 2015 - Progress report due from research team
    November 20, 2015 - First draft due.
    January 4, 2016 - Final draft due
    February 4, 2016 - Final Report produced and approved by COTOR


  6. Proposal Requirements
    Proposals should include a clear outline of the work that will be performed and the time frame in which it will be performed (including key dates). The more specific the proposal covers the goals the better. A cost estimate or range should accompany each proposal. The proposal should address the following: The proposal should be accompanied by the resumes of the researcher(s), indicating how their background, education, and experience bear on their qualifications to undertake the review. Receipt of proposals will be acknowledged in a timely manner. All decisions regarding the evaluation of responses to the RFP will be awarded entirely based on the information provided in the written proposals. The CAS will award the contract to the respondent who, in the judgment of the Committee on The Theory of Risk (COTOR), is best able to perform the work as specified herein. If it is determined that no proposal meets the requirements of the RFP, then no contract will be awarded. When a respondent is chosen by COTOR and the contract awarded, respondents not awarded the contract will be so informed shortly thereafter. Interested researchers should submit their proposals and any questions in writing to:
      Casualty Actuarial Society
      Attention: Karen Sonnet, RFP COTOR
      4350 N. Fairfax Dr. Suite 250
      Arlington, VA 22203
      Phone: (703) 276-3100 ext. 762
      Fax: (703) 276-3108
  7. Presentation, Ownership and Publication of Report
  8. If asked, the researcher(s) agree to be available to present the report at a CAS meeting or seminar. If travel is required, reasonable expenses will be paid in addition to the compensation provided in Section 5.

    As a condition of selection, the CAS requires that all right, title, and interest, including copyright and patent, in and to the report be owned by the CAS. The selected researcher must sign a formal Agreement (attached) that assigns all such rights to the CAS. Of course, in any publication of the report, the researcher will receive appropriate credit. The CAS may publish the report in any CAS publication, including electronic versions such as on its Web site or on compact discs.

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