Aligning ERM, Strategic Planning, and Board Priority-Setting Process: Case Study
True ERM is meant to be across the ‘enterprise’, holistic and proactive and used as a strategic communication tool. Healthcare tends to be focused on adverse clinical event claims mitigation. Despite the implementation of many promising (and overlapping) initiatives, healthcare remains at the top of the national concern list.
Non-clinical risks are usually distributed across various portfolios, leading to a divergence of processes and masking the overall understanding of risks to the organization. The literature suggests that ERM used broadly to coordinate an organizational risk program reduces uncertainty and, over time, improves the prospects of success in terms of addressing financial and insurable hazards, as well as guiding strategy, operations and technology, reputation, and regulatory compliance within the organization. It needs to include a combination of stakeholders throughout the strategic planning process, balanced with external review and consultation, and needs to be clearly communicated and translated into the plans of the various units and departments.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Peter Tomopoulos
Panelists:
Helene Baril, Ella Young
Third Party Risk Management: War Stories and Leading Practices
The risk presented by third party suppliers and vendors is broader and potentially more impactful than ever before. With the Internet of Things and a trend towards outsourcing, the enterprise level risk presented by third parties is a conversation being held in Boardrooms of every industry. Regulators, rating agencies, shareholders and clients are wanting more visibility and clear evidence that critical third parties have adopted the appropriate information security as well as other operational risk controls. This session will share best practices in managing third party risk as well as examples about what has and could go wrong when your third parties become a point of exposure.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Gary Wierzbicki
Panelists:
Randi Woods Webber, Scott Margolis, David Miles
Using ERM to Manage Interactivity Between Operational Risk, Reserve Risk, and Underwriting Risk
“Reserve risk” is a complicated concept, meaning different things to different stakeholders. Capital modelers focus on the tail of the liability distributions to identify capital charges and assess capital adequacy. Corporate actuarial and finance departments focus on the variability around the mean of the liabilities to determine an appropriate accounting entry – and its impact on surplus. Pricing actuaries and underwriters focus on the risk that estimates of future experience may be misestimated due to a misunderstanding of similar recent experience. Claims departments focus on legal or operational risks associated with claims handling procedures.
This session will illustrate how risk appetite and tolerances frameworks, and associated risk monitoring tools, can be used to manage the various components of “reserve risk” through highlighting the interactions of operational risk, reserve risk, and underwriting risk.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Hugh Thai
Panelists:
Kevin Madigan, Mario DiCaro
Adapting ERM Framework to Firm Size, Complexity, and Culture
ERM programs vary given the size and complexity of an organization. In this session, we contrast the ERM Frameworks from a large multinational insurer and a small/mid-size domestic insurer. We highlight how ERM is embedded in decision making, the extent of the risk network within the organization and the external/internal pressures that can influence risk priorities. As well, we demonstrate the challenges of establishing a centralized ERM function within a small/mid-size insurer and provide insights on how to get buy in.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Hugh Thai
Panelists:
Elaine Lajeunesse, Rishi Kapur, Michel Fournier
Skills Needed to Become and Remain an Effective CRO
The actuarial/technical career path is a great start, but if you want to be a CRO, there's a lot more to learn. This session will help identify the gaps in traditional actuarial training for someone wanting to end up in the CRO chair.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Joe Emison
Panelists:
Elaine Lajeunesse, David Schraub, Sharon Giffen, Randi Woods Webber
Risk Modeling for Insurers: Real-World Assets and Risk-Neutral Liabilities
Insurance asset risk is often assessed using risk-neutral generators which start with economic scenario generators designed for pricing hedge products. This is a sound way of pricing, and gives consistent risk loading to a wide range of products. However for insurance risk management the distribution of asset value changes when holding a fixed portfolio is often the key issue. For this, real world probabilities are needed. Financial industry ESGs may not adapt well to a real world environment - lognormal distributions for example can work well for pricing but are too skewed for actual risk analysis. The best real-world models require numerical methods, but fairly good generators, beating most in the market, can be built in Excel.
This session will look at scenario generators for interest rates, credit spreads, inflation, and equities. Performance of some generators will be compared to historical data. Then probability transforms that are applied to insurance pricing and capital allocation will be reviewed.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Joe Emison
Panelists:
Gary Venter, David Payne
Research Papers
This session presents the award-winning papers from the ERM Symposium's annual Call for Papers.
The two papers that will be presented are:
The Optimal Timing of Risk Management, by Kailan Shang - Awarded the Joint CAS/CIA/SOA Risk Management Section Award for Practical Risk Management Applications.
This paper discusses the methods of determining the appropriate timing of implementing a risk management strategy or investing in risk management projects. It explains the human biases that may lead to inferior timing decisions. It also covers the costs and benefits of risk management projects and the impact of future information in the decision-making process.
Enterprise Risk-Reward Optimization: Two Critical Approaches, by Damon Levine - Awarded The Actuarial Foundation’s ERM Research Excellence Award in Memory of Hubert Mueller for Best Overall Paper.
This paper describes a straight-forward, non-parametric approach to aggregate "stand-alone" or marginal distributions with desired correlations but without imposing additional assumptions on those marginals. It then develops two optimizations for the enterprise, one based on maximizing return on economic capital and the other based on a mean-semivariance efficient frontier from the investor point of view. The definition of economic capital is applicable to any insurer or bank while the efficient frontier can be used in any for-profit company.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Joe Emison
Panelists:
James Ramenda, Kailan Shang, Damon Levine
Model Risk Management in the Insurance Industry
Model Risk Management is evolving beyond simple model governance and validation. This presentation surveys advanced practices. Topics covered include model risk scoring, uses of model risl scores, integration of data quality and model quality assessments, model system identification and analysis, and capital buffers for model risk.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Kevin Bingham
Panelists:
Kathryn Hyland, Hsiu-Mei Chang
Interest Rate Risk: Practical Techniques for Risk Scenario Development
Nominal interest rates are at a tipping point. What’s next? An upward spike in rates? Low (or negative) interest rates? Whichever way interest rates shift, this session can offer insights to savers of all kinds, but especially life insurers. Disadvantageous interest rate risk scenarios are possibly the financial industry's greatest challenge. Arming your organization with a more resilient response can provide a key competitive advantage. This session builds off research that describes how practitioners can apply risk scenario planning to their current risk profile, using practical (and non-costly, non-resource-intensive) tools. The research upon which this session builds can be found at: https://www.soa.org/Research/Research-Projects/Life-Insurance/research-2015-rising-interest-rate.aspx
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Kevin Bingham
Panelists:
Max Rudolph, Matthew Clark
IAA Risk Book: Documentation and Development of Emerging Tools and Best Practices
The current chair of the International Actuarial Association's Insurance Regulation Committee will present and discuss the drafted chapters of the IAA's Risk Book including: Actuarial Function, Model Governance, ORSA and Professional Standards. The discussion will also focus on Operational Risk, Catastrophe Risk, Distribution Risk, Reinsurance & Groups. Finally the session will close with a look at future chapters of the Risk Book which will address Framework Processes such as Resolution of Insolvencies, Capital, Stress Testing, ALM and Financial Statements. This interactive session will allow attendees to give constructive feedback on the Risk Book Project as to what else could or should be included.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Kevin Bingham
Panelists:
Stuart Wason, Dave Sandberg
Fostering the Future: Sustainable ERM for Sustainable Business
Corporate sustainability, the ability to create long-term business value, can be measured in terms of the economic, environmental, and social performance of a corporate entity. This session examines the sustainability imperative and global meta-trends from the key stakeholders’ perspectives, and summarizes the business case for sustainability as well as insurance industry best practices. We will discuss perspectives, frameworks and tools to facilitate the critical transition for insurers to integrate sustainability with their ERM program.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Kevin Bingham
Panelists:
Fan Yang, Stanislav Eratt
Ninth Annual Emerging Risk Survey
This session will review the 9th annual survey of emerging risks, sharing new information learned and comments from risk practitioners. This survey has produced revealing comments about the current status of ERM and how it has evolved. Cognitive biases and practitioner comments of what parts of ERM work and what doesn't work can be incorporated into future developments. We also look at advances in the development of dynamic risk monitoring and risk management design which facilitate greater resilience in the face of emerging risk.
Source:
2016 Enterprise Risk Management Symposium
Type:
Concurrent Session
Moderators:
Hicham Elhassani
Panelists:
Max Rudolph, Neil Cantle, Matthew Clark
Workers Compensation Research Institute: Findings from Recent Studies
Findings from recent WCRI studies including Interstate Comparisons of Utilization of Opioids, Physician Dispensing of Pharmaceuticals, Multistate Benchmarks of claim and medical measures, Ambulatory Surgical Centers: Cost and Utilization. Many of the WCRI studies look at cost drivers and trends within states and patterns of trends on a multistate comparison.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Allen Greenberg
Panelists:
Ramona Tanabe, Phillip Borba, Vennela Thumula
The Effect of Increased Longevity on Workers' Comp Reserving
Changes in longevity affect the payments an insurer can expect to make to workers' compensation claimants. People live much longer today than they did a fifty years ago. In one part of this session, we will look at the problems that changing longevity might cause in standard actuarial development methods, particularly in evaluating tail factors. In the other part, we examine the ways some of these problems are addressed and highlight additional areas for consideration by a practicing actuary.
In part one, some of the topics will be:
The theoretical impact of longevity on a long history of workers comp data
Some ideas as to how development triangles might be adjusted to capture the true development
And in part two, we will feature additional considerations such as:
Relationships between age of claimant and severity
Longevity of injured workers vs. the general population
How longevity impacts vary by type of injury
Regulatory and operational considerations
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Allen Greenberg
Panelists:
Rachel Dolsky, Thomas Toce, Ryan Royce
California Workers' Compensation — What's Next?
By most measures, California is the highest workers' compensation cost state in the country. Legislation was enacted in late 2012 to reduce some of these costs while increasing permanent disability benefits. The panelists will discuss which parts of the legislation have worked as intended and what parts have not. The panelists will also look forward to what system pain points remain and how those remaining pain points will impact estimates of ultimate losses on older accident years.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Allen Greenberg
Panelists:
Alex Swedlow, Steven Herman, Dave Bellusci
Understanding and Quantifying Systemic Risks in Casualty Reserves
What drives the reported loss development for the P&C industry? Where is the industry now with regards to factors that drive reserve position? This session will give an update on market cycle and reserve cycle statistics, focused on the Specialty Carrier segment. A detailed analysis on Commercial Auto Liability will serve as an example. The panel will discuss current issues affecting industry reserves including loss trend and price changes. This panel will also share a reinsurance underwriter's perspective on the anticipation of the systemic risks to avoid large or continuous reserve increases as well as the implications on pricing and reserving.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Allen Greenberg
Panelists:
William Wilt, William Miller, David Clark, Christian Wirtz
Two Recent Developments in Bayesian MCMC Models for Stochastic Loss Reserving
#1 Given a Bayesian Markov Chain Monte Carlo (MCMC) stochastic loss reserve model for two separate lines of insurance, this presentation describes how to fit a bivariate stochastic model that captures the dependencies between the two lines of insurance. A Bayesian MCMC model similar to the Changing Settlement Rate (CSR) model, as described in Meyers (2015), is initially fit to each line of insurance. Then taking a sample from the posterior distribution of parameters from each line, this paper shows how to produce a sample that represents a bivariate distribution that maintains the original univariate distributions as its marginal distributions. This presentation goes on to compare the predicted distribution of outcomes by this model with the actual outcomes, and a bivariate model predicted under the assumption that the lines are independent. It then applies two Bayesian model selection statistics to compare the fits of the two models.
#2 A cost of capital risk margin is defined as the difference between the initial required capital and the present value (at a risky market rate) of the release of capital as losses are settled. With the output of a Bayesian MCMC stochastic loss reserve model, one can create (say) 10,000 equally likely loss scenarios that represent the future given the loss triangle at hand. The model can generate multiple instances of future losses, and given these losses, repeatedly update the probability of each scenario over time. With these updated probabilities, one can calculate the updated capital requirements and how it gets released over time. This enables one to calculate a cost of capital risk margin.
If one takes a look at the EU Solvency II cost of capital risk margin formula, they will see that these risk margins are added separately by line. Using the results of the first presentation this presentation will discuss this provision.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Allen Greenberg
Panelists:
Glenn Meyers
Stochastic Reserve Model Using a Linear Mixed Effect Model
This session will demonstrate how to create a stochastic reserve model using the Linear Mixed Model routine available in the SAS software routines as well as within the R environment. The speakers will cover the topic from two viewpoints. One speaker, Michael Larsen, is an actuary that uses this technique in his daily work. The other speaker, Thomas Struppeck, is on the faculty at The University of Texas and teaches classes on applied statistics.
The particular examples included in the presentation will use the SAS routines that are available in the SAS EG environment. The general model structure will be similar to that presented in Zehnwirth's article "Best Estimate for Reserves". The session will outline the special challenges involved in modeling a loss triangle's payments to ultimate and summarize how a Linear Mixed Model's properties accommodates those challenges.
One can view the reserving problem as an example of a repeated measure modeling problem, which has been handled by the statisticians using techniques like Linear Mixed Models for many years.
Mixed models are models that include both fixed effects and random effects. The session will include a brief review of what is meant by the terms fixed and random effects and a discussion of when modelling using a random effect might be more appropriate than using a fixed effect. One instance where that can occur is when there are repeated measurements.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Allen Greenberg
Panelists:
Michael Larsen, Thomas Struppeck
Applications of Reserve Ranges and Variability in Practice
Fundamental reserving methods generate point-estimates of the unpaid claims liabilities. Stochastic methods have expanded capabilities for assessing variability of the historical experience and suggesting distributions of possible outcomes. But the methods don't necessarily provide direct evidence toward the proverbial 'range of reasonable estimates.'
The speakers will facilitate a discussion around the variety of business applications where a reserve range is sought -- and a variety of ways to form a view on such a range. They will provide a brief discussion of two theoretical approaches to reserve variability presented in the literature, and also the concept of sensitivity testing that is not cited in the literature but is commonly used. They will share some illustrations of the application of a stochastic approach for assessing a distribution and of sensitivity testing to form a range of reasonable estimates -- thereby seeking to build a bridge between the two approaches.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Ryan Morrison
Panelists:
Mark Littmann, Christopher Walker, Paul Struzzier
GLM's and Bayesian Models
As the level of sophistication of reserving tools increases in recent years, actuaries are gradually supplementing the traditional chain ladder framework with more advanced modeling techniques. Generalized linear modeling (GLM) expands beyond the chain-ladder framework, which focuses only into the development year dimension, by modeling also trends in both the accident year and calendar year dimensions of a triangle. The session will briefly describe the GLM modeling framework and walk the audience through a simple example of how this is employed specifically within the reserving context. Furthermore an optimization routine that allows the modeler to fit the GLM in all three triangle dimensions simultaneously will be discussed.
The session will also cover Bayesian stochastic models, highlighting the evolution from the analytical implied ranges from the GLM model to simulated ones that employ likelihood functions calculated from the GLM model. The session will describe the underlying Bayesian statistical framework in simple terms and how that is employed within the reserving context. An example will go over two specific Bayesian examples, one where an analytical example with no simulations is needed and another one where Markov-Chain-Monte-Carlo (MCMC) simulations are implemented within the Bayesian context. Some of the most popular sampling techniques employed within the Bayesian modeling framework will be also described in laymen terms.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Ryan Morrison
Panelists:
Emmanuel Bardis, Edmund Douglas
Trends in General and Trend by Size of Loss in Particular
An eye opening discussion of trends by size of loss! A review of evidence suggesting that trend is not uniform based on size of loss. Are the large losses subject to different inflationary pressure than the small losses that cause the shape of the loss distribution to change? Consequently, are trends in Excess layers materially different from the expected trend based on the uniform trend assumptions? A discussion of the specific techniques to parameterize these trends using a large medical professional liability database. Discussion of how these techniques preserve variance by size of loss better than the traditional LDFs, and their impact on the ultimate loss ratio projections for Excess books.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Katie Clouser
Panelists:
Vagif Amstislavskiy, Ahmad Shadman
Toxic Tort Litigation and the Scientific Revolution: Get on Board or Get Run Over
This session will explore rapid developments at the intersection of the law and science and the impact on insurance companies unprepared to meet the claim and coverage issues that lay ahead. A scientific and legal expert will provide an overview of recent developments using both an established toxic tort (asbestos) and emerging mass tort claims (talc powder) to demonstrate the growing importance of putting to use exponential growth in scientific and medical knowledge. A professional from Praedicat Inc. will reveal the tools available to (re)insurers willing to invest in big data analytics; in turn allowing them to spot exposure-based loss drivers and their potential accumulation under insurance policies. A (re)insurance professional will discuss ways in which these new tools and the proper internal investments in claims, risk management, and legal professionals can prepare an insurer for the toxic tort claims of tomorrow.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Katie Clouser
Panelists:
William Wilt, Kirk Hartley, Fred Kipperman
The Current and Expected Future State of US Asbestos Litigation
Asbestos claims continue to be a strain on P&C insurers. Total U.S. industry incurred losses related to asbestos have increased in every year for the past 20 years. In addition, the industry has observed concerning trends in the incidence of secondary exposure claims. We will provide accurate details of the current issues and filing trends. Additionally, we will discuss the factors affecting forecasts of future claims and changes that are expected.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Katie Clouser
Panelists:
Brad Drew, Lauren Cavanaugh, Christopher Makuc
Reconciling the Differences: Pricing Actuaries vs. Reserving Actuaries
There are many differences seen in how pricing actuaries and reserving actuaries perform their jobs besides differences that should exist such as trending loss data. This session will explore the current state of the market based on observations seen in the panelists past experiences. The session will delve into areas where problems have existed for the insurance and reinsurance industry. The session will devote time to issues such as programs and reconciling data from past pricing submissions. The session will provide some suggested areas for improvement from past practices. The session will focus on prepared slides but relevant commentary and points from the audience are welcomed.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Moderators:
Katie Clouser
Panelists:
Emily Allen, John Ferrara, Brian Janitschke
Presenting Your Data Graphically
Presenting data graphically can help to more effectively communicate your message. The physical layout of the graphics can enhance or inhibit your ability to communicate, or can even mislead your audience. In this session, we will cover best practices for representing data graphically, showing both good and bad examples, and discussing why the good examples are superior.
Source:
2016 Casualty Loss Reserve Seminar (CLRS)
Type:
Concurrent Session
Panelists:
Brian Mullen, Kevin Roll