Browse Research
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2006
Standard optimal portfolio choice models assume that investors maximize the expected utility of their future outcomes. However, behaviour which is inconsistent with the expected utility theory has often been observed.
2006
In this article, we consider the links between solvency, capital allocation, and fair rate of return in insurance. A method to allocate capital in insurance to lines of business is developed based on an economic definition of solvency and the market value of the insurer balance sheet. Solvency, and its financial impact, is determined by the value of the insolvency exchange option.
2006
Enterprise Risk Management (ERM) is a body of knowledge – concepts, methods, and techniques – that enables a firm to understand, measure, and manage its overall risk so as to maximize the firm’s value to shareholders and policyholders. The purpose of this paper is to demonstrate this often-asserted but seldom-described linkage between ERM on the one hand, and maximizing a firm’s value on the other.
2006
The primary focus of research in enterprise risk management (ERM) has been on the corporation, with an emphasis on publicly traded companies. Some research has tried to apply an ERM approach to pension plans. However, many take the view that a pension plan is not an entity on its own, but exists within a corporation.
2006
Enterprise risk management (ERM) has been getting an increasing amount of attention in recent years. While various industries, regions of the world and professional organizations may have coined different names for their general framework, the underlying theme is the same.
2006
Capital level has significant impact on policy premium and shareholder return. A company with less capital is more likely to default on the claim payments, so it should charge less premiums. However, the expected profit may not decline with the premium, since the expected loss payment falls as well. Shareholders provide capital and receive the insurance profit.
2006
Insurance company issues that do not necessarily arise in banks are identified and utilized to develop insurer ERM modeling approaches that start from the work done for banks but respond to insurance-specific matters. Some of the approaches discussed could also be used to refine banking models.
2006
Management needs performance measurement tools for planning and strategic decision-making. Good performance measurement tools bring discipline to the business planning process and can help to align corporate objectives with management incentive plans. Capital allocation procedures are a common way to fulfill some of these needs.
2006
Historically, it has always been a challenging mathematical task to get an explicit formula for the solution of a polynomial equation of the degree n, when n>2. As we know the yield rate of a portfolio is usually an implicit solution of the algebraic equation of degree greater than 2, i.e., it usually cannot be calculated explicitly by means of a finite number of fractions and radicals.
2006
The measurement of “risk” is a critical component of enterprise risk management, insurance pricing and reserving, and strategic and operational decision making. Some commonly used measures attempt to quantify risk by considering volatility or downside “potential.” Other measures examine ratios of upside versus downside potential, or upside potential versus volatility.
2006
In this paper, the concept of an enterprise risk management office (ERMO) is examined. The ERMO concept is investigated relative to another recent enterprise-wide entity that has evolved in many corporations and public institutions: the project management office (PMO). The PMO is analyzed for any guidance it can provide regarding the implementation and benefits of a potential enterprise-wide and holistic approach to risk management.
2006
The purpose of this paper is to build a bridge between the traditional methods of looking at financial risk and insurance risk. Currently, many regulatory and internal company models are attempting to combine insurance risk into a value-at-risk (VaR) modeling structure.
2006
In order for actuaries to play a valuable role in the realm of enterprise risk management (ERM), they must provide value-added advice and quantitative analyses. In this paper, the authors use stochastic simulation technology to present a risk metric for defined benefit pension plans that provides improved measures of the plan’s solvency and provides a tool for pension plan managers to determine the value of risk mitigation activities.
2006
This paper is Part 1 of a two-part submission. Part 2, “An Alternative Approach to Capital Allocation,” discusses using risk-replicating techniques that directly calculate the cost of capital.
2006
The typical firm is subject to a wide variety of risks. Understanding and quantifying the interrelationships between individual risk elements is a significantly important but complex challenge. If we view all the risks in a firm as an integrated system, we can apply a computer-assisted learning process called Interpretive Structural Modeling (ISM) to construct a structural graph and illustrate those risk interrelationships.
2006
While most property and casualty (P&C) insurance companies have preferred to implement risk management strategies centered on accounting statements and employing ad?hoc rules and ratios, the financial industry successfully embraced value-at-risk (VaR) methodology based on cash flow analysis (RiskMetrics®, CreditMetrics®, etc.).
2006
Economic capital (EC) and risk-adjusted performance measurement (RAPM) are becoming increasingly important criteria in product development and performance evaluation for insurance companies. The EC framework can assist in strategic decision making and increase capital allocation efficiency. However, there are very few precise and detailed definitions for EC and RAPM in life insurance case studies.
2006
A variety of equity-linked insurance contracts such as variable annuities (VAs) and equity-indexed annuities (EIAs) have gained their attractiveness in the recent decade because of the bullish equity market and low interest rates. Pricing and risk management of these products are quantitatively challenging and therefore have become sources of concern to many insurance companies.
2006
The term “enterprise” is used here to refer to the firm as a whole. In order for enterprise risk management (ERM) to support the worthwhile goals of insurance firms, an appropriate conception of “value” is needed. Risk will then be seen, properly, in relation to this conception of value rather than as an inherent property.
2006
Motivation: There is a growing need for effective, practical methods of operational risk analysis in all industries. Risk professionals are learning to develop business?unit?level risk distributions, combine those distributions into an aggregate risk model, and use that aggregate risk model to either assign risk charges back to the business units, or to evaluate cost?benefit of mitigation strategies.
2006
The objective of asset-liability management (ALM) is to measure and manage the degree to which the economic value of an insurer is adversely exposed to changes in interest rates. ALM is therefore a component of Enterprise Risk Management, which considers the impact of changes in other variables as well.
2006
This paper was prepared as an introduction to risk-adjusted performance measurement for P&C insurance companies. A simplified numerical example is used to demonstrate how measures such as risk-adjusted return on capital (RAROC) can be used to guide certain strategic decisions.
2006
This discussion paper was developed by the Task Force on Materiality of the Council on Professionalism of the American Academy of Actuaries for discretionary use by
actuaries. Its purpose is to assist actuaries in considering various aspects of materiality as they provide professional services to their principals. This paper was not promulgated by the Actuarial Standards Board and is not binding upon any actuary.
2006
Asbestos litigation is complex and full of uncertainties. The number of historical claims (and how much they cost) is difficult to determine, making predictions of future asbestos costs even more challenging.
The purpose of this document is to provide insight into some of the major issues that should be considered when evaluating possible legislative responses.
