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CAS E-Forum, Winter 2019 Featuring CAS Research Working Party Report
Abstract: In this paper we describe a method of calibrating the Investment Income Offset element of the RBC Formula. Our key calibration decisions are the following: 1. We select the Present Value Approach rather than the Nominal Value Approach2. We convert the current combination of interest rate safety margins and UW risk safety targets to an equivalent UW risk safety target with no interest rate safety margin.
In this paper we analyze the Line of Business (LOB) diversification elements of the RBC Formula.We compare the diversification credit produced by the NAIC Property/Casualty RBC Formula to the indicated diversification credit, i.e., the observed reduction in risk1 with increasing diversification.
It is a well-known result that when an Euler allocation is used to allocate capital by line the overall expected return on capital can be increased by writing more business in lines where the expected return on allocated capital is greater than the overall company wide expected return. If the cost of equity capital varies by line, however, writing more business in these lines may not be the best choice for the company.
The New Zealand Earthquake Commission (EQC) started using DFA (Dynamic Financial Analysis)1 in 1994 and has used DFA commercially ever since. EQC was one of the pioneers in the application of DFA to the insurance industry. Other pioneering users at the same time are described in four papers in the Casualty Actuarial Society Forum, Spring, 1996.
In this paper we apply a simple regression model to link performance of a D&O insurance line of business to the S&P 500 economic variable from an economic scenario generator (ESG). The regression structure is incorporated into an existing economic capital model. The distribution of the error term is constrained so that the final distribution of the D&O line is equivalent to the distribution previously used.
CAS E-Forum, Summer 2019 Volume 2 Featuring the Non-Technical Reserving Call Papers
CAS E-Forum, Summer 2019 Featuring a CAS Research Working Parties Report
The NAIC RBC Formula treatment of line of business (LOB) diversification (referred to in this paper as the CoMaxLine% Approach) is very different from the Solvency II Standard Formula treatment.
Motivation Application of the Shane-Morelli method in practice for multiple reserve reviews revealed potential areas of refinement. Method A theoretical examination of curves best used to develop workers’ compensation tail factors resulted in a proposed enhancement to this part of the original methodology.
CAS E-Forum, Spring 2019 Featuring CAS Research Working Parties' Reports
As the level of competition increases, pricing optimization is gaining a central role in most mature insurance markets, forcing insurers to optimize their rating and consider customer behavior; the modeling scene for the latter is one currently dominated by frameworks based on generalized linear models (GLMs).
Composite distributions have well-known applications in the insurance industry. In this paper, a composite exponential-Pareto distribution is considered, and the Bayes estimator under the squared error loss function is derived for the parameter q, which is the boundary point for the supports of the two distributions.
Misrepresentation is a type of insurance fraud that happens frequently in policy applications. Due to the unavailability of data, such frauds are usually expensive or difficult to detect. Based on the distributional structure of regular ratemaking data, we propose a generalized linear model (GLM) framework that allows for an embedded predictive analysis on the misrepresentation risk.
When predictive performance testing, rather than testing model assumptions, is used for validation, the need for detailed model specification is greatly reduced. Minimum bias models trade some degree of statistical independence in data points in exchange for statistically much more tame distributions underlying individual data points.
Predictive modeling is arguably one of the most important tasks actuaries face in their day-to-day work. In practice, actuaries may have a number of reasonable models to consider, all of which will provide different predictions. The most common strategy is first to use some kind of model selection tool to select a “best model” and then to use that model to make predictions.
This paper advocates use of the generalized logarithmic mean as the midpoint of property catastrophe reinsurance layers when fitting rates on line with power curves. It demonstrates that the method is easy to implement and overcomes issues encountered when working with usual candidates for the midpoint, such as the arithmetic, geometric, or logarithmic mean.
CAS E-Forum, Summer 2018 Featuring the report of the CAS Working Party on Sustainable ERM (SERM)