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STAY TUNED! If you are anticipating additional search filters by attribute and level to align with the CAS Capability Model, it is coming later this Summer. As the CAS begins to code recorded sessions by specific attributes and levels (starting with the 2023 Annual Meeting), these will be tagged in the CAS database of presentations going forward and should be searchable.

But you may use the Capability Model now to help you identify topics. For example, if you want to move up one level under the content area “Functional Expertise,” you may search topics in the particular functional area to expand your knowledge.

Recorded content is searchable by Capability Model attribute and level in the CAS Online Library.

Mathematical Model Trend Survey of Pension Fund's Dynamic Asset Allocation

Mathematical model Trend Survey of Pension Fund's Dynamic Asset Allocation Miwaka Yamashita, CFA   BlackRock Japan Co., Ltd.  miwaka.yamashita@blackrock.com 1-8-3 MTTM Marunouchi Chiyoda-ku, Tokyo, Japan Phone: 81-3-6703-4533, FAX: 81-3-6703-4160 Miwaka Yamashita is Director of BlackRock Japan Co., Ltd. and responsible client advisory. BS and MA holder of Geophysics from Tokyo University and MBA from School of Business and Economy, Michigan Technological University. In The Institute of Actuaries of Japan, acting Head of AFIR study session. Abstract This paper surveys dynamic asset allocation models which uses stochastic optimal control problem methods. Merton model and its valiational models, use of Hamilton Jacobi Bellman Equation (HJB), Backward Stochastic Differential Equation (BSDE), and Malliavin calculus, arrangements for the model, numerical simulation are discussed. Contents 1. Introduction           2. Problem Setting 3. Viscosity Solution 3.1 Viscosity Solution in General Session 3.2 Viscosity properties inside domain and strong comparison principle 3.3 Viscosity Solution for kinked utility 4. Backward Stochastic Differential Equation (BSDE) 4.1 BSDE in General Session 4.2 BSDE and utility maximization 4.3 CRRA utility and BSDEs 4.4 Link to PDE and Viscosity Solutions 4.5 Stopping time problem, Reflected BSDEs and Kinked Utility 5. Relation with Malliavin calculus 5.1 BSDE and  Malliavin 5.2 Malliavin calculus in General Session 6. Summary and Future Challenging References
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Markov Chain Modeling of Policy Holder Behavior in Life Insurance and Pension

We calculate reserves regarding expected policy holder behavior. The behavior is modeled to occur incidentally similarly to insurance risk. The focus is on multi-state modeling of insurance risk, e.g. in a disability model, and of behavioral risk, e.g. in a premium payment - free policy - surrender model. We discuss valuation techniques in the cases where the behavior is modeled to occur independently of insurance risk and where we take explicitly into account that e.g. disabled do not hold behavioral options, respectively. Ordinary differential equations make it easier to work with dependence between insurance risk and behavior risk. We analyze the effects of the underlying behavioral assumptions in two contracts. For a 'new' contract, i.e. low technical interest rate relative to the market interest rate, we obtain the lowest reserve by working with the correct model without inaccurate shortcut assumptions. For an 'old' contract, i.e. high technical interest rate relative to the market interest rate, the picture is more blurred, depending on assumptions on reactivation (recovery) and the route of the shortcut.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Mapping the Sustainability of Care and Support for the Elderly in Developed Countries

All developed countries have an array of programs, involving government funding, that are designed to provide care and support for the elderly, such as social security, health care, and long term care. Some countries’ programs are more extensive than others. Often the full range of required services is not provided by government programs but individuals and their families are expected to provide some of the care and support. Occasionally the level of care and support provided is income-tested or means-tested. Is there a way in which the complete array of programs in each country can be compared and assessed with respect to sustainability and the results communicated easily and effectively? This paper will present a visual display conveying a large amount of information that will enable the sustainability of the array of support and care programs in a number of developed countries to be understood quickly. Although the visual display itself could be quickly understood, there is a significant amount of work required in order to be able to catalogue the relevant programs for the countries, and then to prepare an assessment of sustainability. Depending on the methodology eventually decided upon, and the availability of the necessary data, it may not be possible to assess the programs of every developed country; however, at least 6 countries’ programs, including Canada, England and the United States, will be assessed and mapped. Such a mapping and assessment should be of interest to many of the attendees at the 2014 Congress. I have not yet determined how best to measure and represent sustainability. Some items to consider include: current cost, projected cost increases, demographic changes (that affect number of recipients, number of taxpayers, type of care), impact on other government expenditures, culture (e.g., Swedes seem prepared to bear heavier tax burdens than do Americans).
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Managing Stakeholders In a Global Environment: Solutions to Organizational, Economic and Societal Issues Faced by Financial Institutions

Corporate Social Responsibility (CSR) is gaining importance into the world today. Our paper aims to present the key concepts that actuaries and financial professionals could draw from this trend in order to improve their impact and contribution in building sustainable security systems. The recent financial scandals and crisis highlighted the need for more Ethics. It seems necessary to redefine the concept of Accountability for business actors. It is important, now more than ever, to address the issues of business ethics, corporate governance, environmental concerns and others, in order to create a dynamic context in which firms operate. Understanding CSR is critical because it represents an attempt to define the future of our society. We view CSR from a stakeholder perspective, taking into account the external environment with many constituents interested to the business results. A key element that made CSR more relevant today than before is the technological innovation with the Internet. Nowadays, people are very sensitive to any change that happens anywhere in the world. The world is really interconnected and interdependent. Financial Institutions, among others, need to anticipate and address the CSR issues that range from corporate governance and accountability to executive compensation and financial crisis, from environment sustainability and fair trade to microfinance, microinsurance and religion… In this global challenge, an effective stakeholders’ management could lead to a winning strategy to (re)build a sustainable financial system in the world.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Magame  The Mergers & Acquisitions Game: Global Edition

You are the CEO of a major multinational insurance company known for your steely nerve, snap judgement and good, good looks. They are your competitors and every bit as stone cold sharp as you are. But times are changing, to continue to survive in this jungle of an international insurance market, you also need to change – either merge with one of your competitors or buy the poor sods. Is this real life…you better believe it is: Welcome to Magame – The Mergers & Acquisitions Game (Global Edition). Rather than focusing on everyday actuarial intricacies, we want you to take a step back and think about the bigger picture – what it means to make strategic decisions which have the potential to create (or lose) value for the company you run. You will be given a packet of information prepared by your crack actuarial staff which presents detailed valuations of your competitors. But don’t sweat too much, for the more “visual” CEOs, you will also be given some pretty graphs and pictures which make those actuarial valuations understandable. With these valuations, some cash in your pocket and a bit of insider information about your company, you will have to approach your frienemies and negotiate an acceptable deal. The winner is that company which adds the most value to their company through M&A activity. And to make this as interesting as possible, all teams will represent a real company covering a wide range of geographies and sizes; and all financials will be real financials pulled from publicly available returns. So good luck, your shareholders are counting on you. (1) People – When we played the game before, we had 10 teams with 3-5 people per team. We could easily expand that to 15-20+ teams if need be. (2) Timing – We previously played it during a 60 minute period. So 90 minutes would be fine and more reasonable. (3) Number of Games – We could easily run a number of games simultaneously. I signed up 1 co-presenter so we could run 2 games simultaneously (although with 50 people it might be more manageable with 2 moderators per game). We could also add more co-presenters to run more games simultaneously or run games over multiple time slots. (4) PC vs. Life Companies – I created the game using only P&C companies, but we could easily do a game with life insurance companies.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Looking Back to See Ahead: A Hindsight Analysis of Reserving Methods

Actuarial reserve analyses typically rely on a number of different estimation methods to develop indicated ultimate loss.  The paid and incurred (i.e., paid plus case) chain ladder methods are surely the most common.  Many other methods exist as well, but are used less frequently.  Oftentimes, these methods diverge significantly, and actuarial judgment is used by many actuaries in selecting ultimate loss.  A need exists for empirical evidence to support the use of particular methods over others. In this paper/presentation, thirty actuarial reserving methods are evaluated empirically against an extensive database of triangular data, from Schedule P of United States Property & Casualty Annual Statements, for the years 1996 through 2010.  The metric of method skill (as defined by Jing, Lebens and Lowe in “Claim Reserving:  Performance Testing and the Control Cycle,” published in the 2009 issue of Variance) is used to evaluate the historical performance of the methods.  Results are provided by company size and line of business.  The effect of correlation on the usefulness of additional methods is considered.  Results suggest the use of several methods not common in actuarial practice, as well as a refinement of weights typically assigned to the more common methods. A General Session outline of the paper/presentation is as follows: • Overview of the analysis, including the data available as well as a discussion of the metric. • Results of the analysis, including results by company size and line of business. • The effect of correlation between methods on the results and the practical implications of this correlation. • Additional discussion on the approach to the analysis, and, in particular, the metric selected.  • Lastly, some conclusive remarks.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Long-Term Financial Management of Unfunded Liabilities for Pensions for Public Service

Methodologies for advance funding of pensions are covered extensively in actuarial training programmes worldwide. This paper will cover the alternative of financing pensions on an unfunded basis, often used in the public sector. The paper will explain the techniques applied to the long term financial management of the unfunded arrangements for public service employees in the UK. At present, the 7 largest public service pension schemes have a total membership, comprising 5 million active employees (around one-fifth of the UK workforce) and a total membership – active employees plus retired members currently receiving pensions and former employees entitled to deferred benefits -- of 12 million, (around a quarter of the adult population of the UK). Those 7 schemes cover the National Health Service, Teachers, Police, Fire Fighters, Armed Forces, Civil Service (Public servants in Central Government), and Local Government. All of the schemes listed, except for Local Government, are financed on an unfunded basis. The paper will cover the following areas: h A description of the financing arrangements, including the cash flows, and actuarial techniques used to assess contributions from employees and employers, highlighting the fundamental differences between financing on a pay as you go basis as opposed to traditional funding commonly found in private sector pension provision h How the long term costs are monitored within government h The factors driving the case for reform of public service pensions h The findings (published in March 2011) of the Independent Public Service Pensions Commission, chaired by Lord Hutton h How the Hutton reforms have been implemented, and their impact h Lessons learned The aim of the paper is to share the UK experience with actuaries worldwide, since those charged with managing the public finances in many countries (many carrying material fiscal deficits) are already, or shortly could well be, facing similar challenges.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Longevity Risk In Life Annuities And Pensions: Risk Sharing Solutions

The benefits provided by (conventional) life annuity and pension products imply “guarantees” to annuitants and hence risks borne by the annuity provider, that is, the insurance company or the pension fund. Risks inherent in guarantees have clearly emerged in recent and current scenarios, in particular because of volatility in financial markets and trends in mortality / longevity, provided that the amount of benefits is guaranteed whatever the investment yield and the experienced mortality may be. Appropriate risk management actions are then required: pricing, capital allocation, (traditional) reinsurance, alternative risk transfers. Innovative product designs can also be conceived, in particular as regards managing the longevity risk. In a conventional life annuity, the benefit is not linked to mortality / longevity experience, hence the annuity provider bears the risk of unanticipated mortality improvements, that is the non-diversifiable “aggregate” longevity risk (besides the “individual” longevity risk). However, non-conventional life annuities can be defined, aiming at linking, to some extent, the annuity benefit to the mortality experienced in the group of annuitants, and / or in the market of life annuities (or pensions) and / or in the population. This link implies sharing, between annuitants and annuity provider, the risk arising from experienced mortality. Various approaches can be adopted in order to link annuity benefits to mortality experience, or to updated forecasts of future mortality trends. Interesting solutions have been proposed in the actuarial literature, and some arrangements have been adopted in the insurance and pension practice. We propose a rather General Session model that aims at providing a unifying point of view from which several practicable schemes, sharing the common purpose of transferring part of the longevity risk to the annuitants, can be analyzed and compared. We only focus on the decumulation phase, assuming that an individual holds a given amount at a given time (e.g. at retirement), and that the amount itself is converted into an immediate life annuity.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Long Term Care insurance in Australia: a survey of insurer attitudes

While the State covers most Long Term Care outlay in Australia, the Federal Government’s response to the Productivity Commission report of 2011, the Living Longer, Living Better (LLLB) package of April 2012, has confirmed that individuals who have the means will be required to contribute more than in the past to the cost of care (albeit with certain limits). Private Long Term Care Insurance (LTCI) markets exist in several other countries (notably the US and France) but the product is absent in Australia.  There are many possible reasons for this, one of which is supply-side reluctance. This survey will approach relevant senior officers of life insurers, life reinsurers and major financial services consultants active in the Australian market to explore their attitudes to LTCI in the past and looking forward.  The aims are to: • Gain an understanding of insurer attitudes towards LTCI in Australia • Stimulate meaningful reflection as to whether LTCI is a viable private insurance product in the Australian marketplace • Ultimately, open a dialogue between suppliers and purchasers
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Challenges with Regard to Disability in a World of Individual Responsibility

This paper will focus on the U.S. situation and provide insights into public awareness of and knowledge about disability.  The paper will discuss the trend to defined contribution retirement systems and the implications of disability for retirement security when the primary plan is a DC plan.   The treatment of disability between DB and DC plans will be contrasted.  The paper will also discuss other gaps in disability coverage.  The  U.S. Department of Labor’s ERISA Advisory Council is studying this topic in 2012.  The paper will use the testimony and work of the ERISA Advisory Council as well as data from The Council for Disability Awareness, and previous work of the author to inform the project.  The ERISA Advisory Council report will be published in early 2013.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Causal Drivers of Mortality Trend in Population and Insured Groups

This portion of the session will identify how current trends in underlying causes of death drive the all-cause mortality trends we now see emerging in the US and what factors may influence the trajectory of key causes of death in the future.   Recent published analyses by the SOA and internal studies by Swiss Re find broad parallels between mortality improvement trend observed in the General Session population and in pensioner and life insured population subsets, suggesting that exploration of causal drivers in the population has relevance to understanding emerging insured trends.  Population level data can also be further segmented into different per capita income groupings to explore whether trends in underlying causes of death vary within population subsets, and enable the study of aggregate and cause specific trend in groups that are more economically matched to certain groups of insured. Attendees of this session should leave with a better understanding of the recent dominant age specific causal drivers of mortality trend that are likely to influence near term trend in US population and insured groups and have a better appreciation of the potential impact of external factors such as recessions and health risk factor burden on emerging trend.  Differences in age specific long and short term all-cause mortality trend trajectories will be reviewed and within the context of observed improvements explore whether leveling or exhaustion of key historic causal drivers of aggregate mortality trend is evident in vital statistics data.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Catastrophe Issues

Recent changes in catastrophe models have been disruptive, changing measures of expected catastrophe losses by significant percentages. Should changes like this be expected on a regular basis? We will briefly focus on decision making in the context of the models and the science as they currently are, not as we want or expect them to be. 
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Cash Balance Plans: Valuation and Risk Management

Current valuation and funding approaches for Cash Balance (CB) pension plans are derived from the traditional defined benefit methodology, and are not very well suited to the Cash Balance format. Murphy (2001) demonstrates the Entry Age Normal, Projected Unit Credit and Traditional Unit Credit valuation approaches, and shows that, with some reasonable assumptions, and a realistic valuation basis, the accrued liability valuation may be less than the hypothetical account value.  This result is clearly inconsistent with financial valuation principles, or with prudence in accounting. Gold (2000) analyzes the CB design from a  corporate finance perspective, considering the risk and return to the shareholders of the sponsoring company. Our objective is quite different, though also utilizing financial theory. We consider the CB benefit  as a financial liability, which can be analyzed using the models and paradigms of financial economics and risk management.   We will investigate the financial risks inherent in different CB benefit designs, and we derive funding and risk management techniques that would address the financial risks. Throughout, we consider valuation, funding and risk management holistically. We will demonstrate the advantages and disadvantages of applying modern methods of financial engineering to  CB plan design and management. References: Gold J.  (2000) Shareholder-Optimal Design of Cash Balance Pension Plans. Pension Research Council Working Paper, The Wharton School, University of Pennsylvania. Murphy (2001) The Cash Balance Funding Method. In Cash Balance Symposium Monograph. Published by the Society of Actuaries, Schaumburg, Il.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Calibration of Non-Life Underwriting Risk Charges and Dependency Structure from U.S. Annual Statement Data with Applications to Risk-Based Capital (Standard Formulas), ORSA and ERM

Calibration of Non-Life Underwriting Risk Charges and Dependency Structure from US “Annual Statement” data with applications to Risk Based Capital (standard Formulas), ORSA and ERM. This paper will report on 2011- 2013 research by Casualty Actuarial Society (CAS) Risk Based Capital (RBC) working parties.  The work is based on a 23 accident year/3000 company “Schedule P” database by line of business. The issues addressed by the research include: (a)    Calibration of nonlife underwriting risk charges, including effects of : • Risk by premium/reserve size; • Effect of expense ratio variability on loss ratio variability premium risk measures; • Differences in risk measures by type of company (within line of business), e.g., standard/non-standard auto, professional reinsurer/others writing reinsurance, personal line specialists, commercial lines specialties, etc. • Years of experience of company (new vs. old) (b)   Comparison of solvency II underwriting risk calibration approach to alternatives when applied to this US data. (c)    Dependency between lines of business and between premium and reserve risk based on analysis of copula structure of dependency between lines of business, adjusted for effect size. (d)   Comparison of Solvency II treatment to US RBC treatment of risk for a property casualty company. (e)   Analysis of effect of concentration (size/geography), reinsurance usage and size on historical insolvency rates. (f)     New theory, and implications, on connecting the selection of target risk level (e.g., 99.5% VaR) to financial and risk principles. The component research papers for this research will have been published in the CAS E:Forum by the end of 2013 and as such will be available (I believe) through the CAS website to Congress participants.  The purpose of the presentation at the Congress the will be to (a) bring together the component research elements and (b) promote a discussion of the implications of this research for regulatory standard formulas, ORSA assessment and ERM analysis of non-life insurance companies.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Building and Testing Economic Scenario Generators for ERM

Capital models often establish dependencies among asset and liability risks using links to shared economic factors, such as inflation, interest rates, exchange rates, credit spreads, equity prices, etc. Generating scenarios for the factors thus becomes a core driver of the models. But financial models of such factors are often built for trading purposes rather than risk analysis, focusing on distributions skewed towards building in risk prices instead of real world expectations. We review recent literature in model construction and fitting and propose testing methodologies for comparing candidate models and calibrations. Somewhat different approaches are favored for single-year vs. multi-year scenario generation. For the latter, auto-correlations of individual factors and similar concepts across factors are more critical and so calibration to historical time series is important. For the single-year horizon, models calibrated just to beginning states can give reasonable distributions of end-of-year values.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Benchmarking Actuarial Education - Comparison of Competencies at Qualification and 3 years Post Qualification at IFA and SOA

On October 2, 2012, the Institute and Faculty of Actuaries’ Qualifications Executive Committee approved the extension of the IFA and Society of Actuaries’ benchmarking project to include a comparison of the SOA Competency Framework with the IFA Work Based Skills dimensions with an aim to identify a common skill set at qualification and one three years post qualification based on competencies rather than technical knowledge. The ICA 2014 presentation will present the findings of the actuarial competencies project, which will follow the process outlined below:  A six person Taskforce, comprising three representatives from each association, will be formed to identify competencies from the SOA’s Competency Framework that align with the IFA’s Work Based Skills. The selected competencies will be relevant to all practice areas and will be able to be modified so that performance can be assessed against each competency at two different levels (new Fellow and three years’ post Fellowship). In the UK, the Financial Reporting Council is motivated to ensure that the IFA specifies actuarial skill sets not just at qualification but also three years post qualification and this project will address their concerns. The Taskforce will then validate its initial findings with reference groups in the United Kingdom and North America. After fine tuning the competencies and levels based on reference group feedback, the Taskforce will establish assessment mechanisms for each competency level. Once this task is completed, the taskforce will test members who volunteer for the study at qualification and three years’ post qualification to calibrate and validate the model. This will be the first study of its kind in actuarial education.  Minimum qualifications standards are set by the International Actuarial Association, but both the IFA and SOA exceed these standards. This study will be the first time the two largest actuarial educators have sought to identify and compare, in terms of competencies, the output of the two education programs. We anticipate that the results of the study will enable both organizations to be able to communicate more accurate and realistic expectations of performance to employers of newly qualified actuaries. We further expect that new Fellows will be able to compare themselves against the average performance of others and will be able to anticipate and identify an improvement in each competency area to a benchmark set at three years’ post qualification.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Bayesian Analysis Applications in Actuarial Science Using Markov Chain Monte Carlo (MCMC) Methods (Limited Attendance Session)

This three-hour limited-attendance session is an introduction to Bayesian Analysis applications in Actuarial Science. It is targeted to practicing actuaries who may want to apply Bayesian Analysis in their work.. There will be examples of actuarial applications. Attendees will learn to use a popular software package, JAGS, to compute the posterior distribution. Participants are expected to bring laptops with RStudio, JAGS and R (with the packages “actuar”,”runjags”, “ChainLadder” and “coda") installed. Attendees will be assigned an actuarial application to analyze using material from the session. Box lunch included. This session is a limited attendance session. It requires advance registration, and tickets will be required at the door.  Late registrants should contact Glenn Meyers (ggmeyers@metrocast,net) to receive scripts for the examples discussed in the workshop.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Basic Satisfaction Levels for Retirees

Regulated Defined Contribution pension schemes are widespread among America Continental. Pension actuaries currently use the pension replacement rate as a benchmark to measure how much a worker’s pre-retirement income is replaced by its pension. Although this measure is intended to provide a sense of efficiency of the system, the post-retirement challenge for workers is to be able to purchase at least the basic basket and income projections used in pension replacement benchmark rate don’t capture this because worker’s income is not efficiently linked to macroeconomic variables in Latin America. This article proposes the use of macroeconomic variables such as the Consumer Price Index and the Basic Basket to develop a benchmark indicator of basic income replacement. This indicator is calculated along with all the basic satisfaction levels post-retirement by country and, compared to illustrate the efficiency level of their current Defined Contribution schemes.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Back-Testing the Reversible Jump Markov Chain Monte Carlo

Calculating deterministic reserves is no longer sufficient in our times of enhanced Risk Management. Today, Insurers strive to have a complete view of the risk underlying reserves valuation: therefore stochastic projection methods become central to today’s actuaries. It is even more the case with the Solvency II European Regulation which requires a VaR99.5% valuation… and consequently a very robust stochastic model to obtain a credible tail valuation. This paper presents an innovative application of the Reversible Jump Markov Chain Monte Carlo (RJMCMC) new stochastic method. How reliable is this new approach? The paper will provide some checks based on actual insurers’ data, back test it over time and compare with the results of other commonly used methodologies. It appears that the advantages of the method are many: in particular it does not require minimum Chain Ladder assumptions, and it is the first to enable automated definition of zones within the triangle where different models will be automatically defined to better adjust to the quantity of data available. Some new extensions to the original RJMCMC method will also be explored in the article: for example the use of other tail or "right triangle" distribution functions as well as different time horizons, along with a methodology to choose the most suitable ones.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Autonomous Vehicles: Advances in Automobile Technology and Implications for the Insurance Industry

There has been a considerable amount of interest in the popular press on advances in driver assistance programs.  Some are talking of “driver-less” cars in the near future.  What do we know about the real world performance of such systems today, and what is a realistic time frame for their introduction into the marketplace?  As cars become more and more automated, lawmakers and regulators will face new challenges in governing the testing and driving of these cars.  Insurers will face new challenges in collecting data, setting rates, and determining liability.  Panelists Kim Hazelbaker and Mike Stienstra will discuss the latest advances in crash-avoidance technology and the issues insurers need to address to be prepared for the emerging automated vehicle market.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Australian Investment Performance 1959 to 2013 (and Investment Assumptions for Stochastic Models)

This paper analyses 54 years, or 216 quarters, of Australian investment performance from 30 June 1959 (and earlier for some sectors) to 30 June 2013.  The paper updates three previous papers presented in 2005, 2007 and 2009 to the Institute of Actuaries of Australia and to the ICA 2010.  The aim is to assess whether the methodology for determining assumptions in the previous papers is still robust enough to produce reasonable financial assumptions now that a further four years of financial data, covering a tumultuous period in global markets, is being examined. The analysis covers eleven investment classes and four key financial indicators: Growth Securities Australian shares Int’l shares (hedged Int’l shares (unhedged) Property trusts Direct property Interest Income Australian fixed interest Int’l fixed interest (hedged) Government semis (0-3yrs) Inflation linked bonds Loans/corporate credit Cash Financial Indicators CPI (price inflation) AWOTE (wage inflation) 90-day bill rates 10-year bond rates For each of these 15 “sectors” the annualised average results are tabulated and summarised for: • risk margins (over 10-year bond rates), • coefficients of variation, • skewness, • kurtosis, • cross-correlations, and • auto-correlations. From these results, assumptions are developed for the mean, standard deviation, skewness, kurtosis, cross-correlations and auto-correlations for each sector.  The assumptions are intended for both medium-term (3 to 10-year) and long-term (10 to 40-year) modelling.  These assumptions are primarily designed for use, until 2016, in stochastic investment and asset/liability modelling.  After about two or three years they should be updated.   The paper also analyses: • economic cycles using a sine curves technique, • the impact of the Global Financial Crisis, comparing it with previous market downturns in 1974, 1987 and 2002/03, and • auto-correlations, concluding that Australian share and bond 26?year auto-correlations ending 1986/87 were similar, after re-scaling the X-axis, to those ending 2012/13.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Asymptotic Behavior of Central Order Statistics Under Monotone Normalization and Several Applications to Reinsurance

Smirnov, 1949, derived four limit types of distributions for linearly normalized central order statistics, under the weak convergence. In this paper, we investigate the asymptotic behavior of central order statistics under monotone normalization. The explicit forms of the limit distributions are obtained using regular norming sequences of mappings from the group of max-automorphisms and the solutions are found of two functional equations which characterize the possible nondegenerate limit of the k-th upper order statistic with central rank. The contribution to reinsurance is presented as a direct application of the k-th central order statistic in rensurance of the k-th largest claim, or reinsurance of the aggregate amount of the k largest claims in the portfolio. Another view of the Pick over the treshold method is given using central order statistics.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Asymmetry of Information in Finance

In this paper, we consider differences of information that are available for several kinds of investors. We study the impact in different cases (small investor and influent investor) and present some applications to take into account the presence of insiders on financial markets.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

Analysis of Objective Oriented Perspectives for the Calculation of Solvency Capital Requirement for Pension Funds Considering Solvency II and IORP II

When entering into long-term commitments one should consider a risk management that ensures the ability to fulfill these obligations. In this context obligations of occupational pensions, which are assumed by employers, life insurers or special institutions for occupational retirement provisions (IORPs), have become a subject of specific interest. The European Commission has already developed a supervisory system for life insurers, called Solvency II. Through the IORP II project initial steps have been taken to revise the current IORP Directive. We will discuss the question of how such a system should be designed for IORPs. At first we will work out the differences between German pension funds and life insurers. The decision, which of these characteristics should be taken into account for the calculation of the Solvency Capital Requirement (SCR), will primarily depend on the objectives set. Possible objectives are the protection of the beneficiary, the employer as the contractual partner of the pension fund, the stability of the system or the avoidance of regulatory arbitrage. Based on these objectives we can derive two possible regulatory perspectives: The first perspective is aimed at the protection of the beneficiary within a system, which is assumed to be stable. The second perspective is targeted toward the following three points: the protection of the contractual partner, the stability of the system and the avoidance of regulatory arbitrage. We will discuss the consequences of these two perspectives with respect to the consideration of the above mentioned specifics for the calculation of the SCR and also further effects and risks. Finally, we will introduce a model which allows the calculation of the SCR for each of the two different perspectives. Using this model, we will analyze the perspectives regarding their impact on the SCR under varying assumptions and different constellations of risk sharing.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session

An Economic and Actuarial Analysis of Death Bonds

A typical life insurance is a contract that requires the insurer to compensate the dependents for the death of the insured, upon payment of a premium. Its value is related to financial security and comfort that the benefit provides to the family of the deceased. However, with the possibility of surrender and high discounts imposed by the insurer, emerged the possibility of a secondary market, with the issuance of a title - the death bond - backed by life insurance contracts, whose rate of return for the investor depends on the time elapsed until the death of former recipient. This work aims to analyze the viability of this market by using simulations from the pricing of the insurer under the contract until the pricing of these securities by the secondary market. Moreover, in assessing the impacts of possible failures in this market, we were able to identify not only the target audience of the new product that make larger gains for investors, but also we quantify the potential financial returns for different scenarios. We calculated the expected rates of return by the investor in two scenarios: in the first one,  pricing was based on a standard mortality table; in the second one it was used an aggravated table for cancer patients. The main conclusion is that, although the first scenario it is a low attractive investment, the results obtained in the second scenario points to a very attractive product for investors, since the rates of return are very high and the standard deviations are very low for the death bond.
Source: 2014 International Congress of Actuaries
Type: Concurrent Session