Committee on Valuation, Finance, and Investments Issues Request for Proposal Credit Risk Resources Compendium
- 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 online.
- Credit Risk Section / Committee on Valuation, Finance, and Investments
The Credit Risk Special Interest Section (CRiSIS) serves the following purposes: promoting discussion and the exchange of ideas, among members and subscribers, on the subject of credit risk evaluation; providing forums for such discussions to take place; advancement of the knowledge of actuarial science as applied to credit risk through both original research and surveys of members’ and subscribers’ collective knowledge; and promotion of good fellowship among its members and subscribers.
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.
CRiSIS and VFIC will sponsor the research to be conducted under this RFP on behalf of the CAS.
- CAS Interest in the Subject
The rise and fall of subprime mortgage securitizations contributed in part to the ensuing credit crisis and financial crisis of 2008. These crises have demonstrated the importance and value of independent critical analysis of credit risk. Actuaries have much to contribute to this field through their core competency in evaluating long-term contingent risks under changing conditions and environments. However, credit risk analysis must also recognize the financial and economic elements that lead to a strong correlation of risks and render many traditional actuarial methodologies deficient without proper consideration of these unique characteristics.
Indeed actuaries have been integral to credit risk analysis through their involvement in title insurance, mortgage guaranty insurance, financial guaranty insurance, asset management and deductible/reinsurance collectability areas. This project In order to promote best practices in credit risk analysis by actuaries and to provide a valuable tool set for actuaries to expand their reach into the critical field of independent credit risk analysis.
- Research Problem Description
The goal of this project is to develop an organized set of resources on credit risk for the practicing actuary. The resources will be tailored to actuarial applications such as reinsurance credit risk, mortgage guaranty insurance and actuarial modeling of fundamental credit risk of assets/investments for cash flow modeling, intrinsic valuations of structured credits, and enterprise risk management purposes. The winning bidder will assemble a compendium of credit risk resources including articles, research papers, books, software and other tools to assist actuaries in such analyses. The compendium should also include sources for credit risk data that might be utilized by practicing actuaries including sources default rates and severities/recoveries available in the public domain and data that may be purchased on a subscription basis.
The resulting compendium might ultimately be built into a well organized webpage on the Joint Risk Management Section website with a link to the Credit Risk Special Interest Section website (or vice-versa) though the website construction will not be part of the scope of this proposal. References within the compendium can link directly to the underlying resource when it is already available on the World Wide Web.
The references can include papers, essays, books and reports including those by both actuaries and non-actuaries. Examples of this kind of research specifically by actuaries are infrequent, but they exist. The following papers are two examples:
- Schmitz, M. and Mrotek, K, 2010, Method for Projecting Mortgage Credit Losses and Recommended Enhancements, Casualty Actuarial Society E-Forum, Fall 2010 Volume 2.
- Hansen, H. and van Akkeren, M, 2004 On Mortgage Prepayment and Default: A Historical Distribution Analysis Approach, International AFIR Colloquium
- Project Requirements
CRiSIS and VFIC request proposals from qualified researchers to conduct secondary research to identify and assemble a list of resources on credit risk analysis that might be useful to practicing actuaries. Such resources may include articles, research papers, books, rating agency reports, presentations, software and other tools to assist actuaries in such analyses. Once the set of resources is identified, the winning bidder should organize the most useful and relevant resources into a well structured compendium that aids the practicing actuary in navigating the compendium to easily identify and locate valuable resources.
- 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:
- Methods to be used to identify and to obtain source material to construct the compendium
- Examples of the likely sources for obtaining such material; and
- The preliminary organizational structure anticipated by the researcher to construct the compendium. 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 credit risk and P&C actuarial methods, 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 CRiSIS and VFIC, is best able to perform the work as specified herein. If CRiSIS and VFIC determine 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. Fairfax 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 CRiSIS and VFIC.
- Proposed Schedule
September 23, 2011
Deadline for questions (must be written) from researchers regarding the RFP.
October 6, 2011
All written questions together with their answers will be distributed to all proposers.
October 20, 2011
Proposal deadline - end of business day
November 4, 2011
Proposal selection by CRiSIS and VFIC
Draft Report and Final Report due date to be decided by researcher and included in proposal
The amount of funding available for this project has not been determined at this time. Proposers should include an estimate of their funding requirements in their proposal. The final scope and funding for the project will be decided by the Committee based on the funding requirements and the expected results of the project. Payment 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 8. The researcher(s) are also encouraged to make sample calculations available in spreadsheets or code for a widely used analytical language such as R. 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).