Request for Proposals: Risk Margins
CASUALTY ACTUARIAL SOCIETY
Committee on Valuation, Finance, and Investments
It should be noted there already exists a Risk Margin Working Group within the International Actuarial Association (IAA). This group is in the process of writing a paper on this same topic. However, this paper a) addresses both Life and P&C, and b) is written for an international audience. The respondent may choose to review and build upon the work produced by the IAA Working Group, but the result should be a paper focused on educating US P&C actuaries.
The CAS produced in 2000 a White Paper on Fair Valuing Property/Casualty Insurance Liabilities. This paper was much broader in scope than the paper proposed to be written here, and there have been developments since 2000 that may have made some of the material in that paper outdated. However, the respondent may find it to be a useful resource.
In 2004, the CAS commissioned two papers studying similar issues, which were published in a document “Fair Value of P&C Liabilities: Practical Implications.” These, too, may serve as useful resources.
- 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, funded research activities, and other means. The membership of the CAS includes over 4,600 actuaries employed by insurance companies, industry advisory organizations, national brokers, accounting firms, educational institutions, state insurance departments, the federal government, and independent consultants. Additional information about the CAS can be found at www.casact.org.
- Committee on Valuation, Finance, and Investments
The Committee on Valuation, Finance, and Investments (VFIC) is charged with providing direction, guidance, and support to the profession, regulators, and others regarding valuation and financing of property and casualty risks and investments. The Committee is also responsible for monitoring and coordinating activities with other organizations or CAS committees working in areas related to property and casualty valuation, finance, and investments.
VFIC will sponsor the research to be conducted under this RFP on behalf of the CAS.
- CAS Interest in the Subject
The International Accounting Standards Board (IASB) is actively working on a project on accounting for insurance contracts. While the details are still evolving, it appears liabilities will be valued under the standards being promulgated by reflecting:
- expected cash flows,
- adjustments for time value of money, and
- an explicit risk margin.
The Financial Accounting Standards Board (FASB) has joined IASB on this project. The plan is that the standards developed by this joint project would replace US GAAP at some point in the future. As a result, it is important for US P&C actuaries to be aware of the relevant issues.
US P&C actuaries are generally comfortable with the first two elements listed above, expected cash flows and adjustments for time value of money. The third item, however, is not as fully developed, and US P&C actuaries could benefit from further education and guidance in this area.
- Research Problem Description and Project Requirements
The purpose of this RFP is to produce a paper that does the following:
- Provides a background summarizing the issues surrounding the IASB insurance contracts project
- Provides a background summarizing the valuation of liabilities under the standards being promulgated
- Addresses the area of risk margins in depth
- Identifies and discusses methods that can be used
- Includes practical illustrative examples of reasonable calculations using these methods, preferably including live spreadsheets that can be available for download and used by others
- 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.
This proposal will be reviewed in conjunction with the attached Research Agreement which defines the terms and conditions under which the work is performed.
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 research.
Respondents should demonstrate their interest in and familiarity with the literature on the evaluation of risk by including a resume (if a firm, of the principal consultant(s) performing or directing the work) showing relevant work/research experience and professional accomplishments (e.g., papers published).
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 VFIC, is best able to perform the work as specified herein. If VFIC determines that no proposal meets the requirements of the RFP, then no contract will be awarded.
When a respondent is chosen by VFIC 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: Chairperson, VFIC
4350 N. Farifax Dr. Suite 250
Arlington, VA 22203
Phone: (703) 276-3100
Fax: (703) 276-3108
The proposals will be reviewed by members of a subcommittee of VFIC. The current membership of the VFIC includes:
|Jason Russ, Chair||Chris Gross||Claus Metzner|
|Todd R. Bault||Philip Kane||David A.
|Michael Belfatti||Lawrence F. Marcus||Meyer Shields|
|Kirk D. Bitu||Michael McCarter||Chester John
|Kirk Conrad||Rasa Varanka McKean||Yuanhe Yao|
|Richard Goldfarb||Todd C. Meier|
- Proposed Schedule
August 28, 2009
RFP circulates to CAS sources
September 18, 2009
Deadline for questions (must be written) from researchers regarding the RFP.
October 2, 2009
All written questions together with their answers will be distributed to all proposers.
October 16, 2009
Proposal deadline - end of business day
October 30, 2009
Proposal selection by VFIC
Draft Report and Final Report due date to be decided by researcher and included in proposal
A maximum total of $25,000 is available to be awarded to one or more researchers. Payment of award(s) will be contingent upon delivery of an acceptable research product.
- Presentation, Ownership and Publication of Report
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 7. The researcher(s) are also encouraged to make sample calculations available in spreadsheets.
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.
- Research Agreement
A standard research agreement will be provided to the researcher(s).