1 / 16

RCM-4: From Enterprise Risk Management to Ratemaking

RCM-4: From Enterprise Risk Management to Ratemaking. Don Mango, FCAS, MAAA Director of R&D, GE Insurance Solutions Vice President of R&D, CAS CAS Annual Meeting November 2004.

zwi
Download Presentation

RCM-4: From Enterprise Risk Management to Ratemaking

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. RCM-4: From Enterprise Risk Management to Ratemaking Don Mango, FCAS, MAAA Director of R&D, GE Insurance Solutions Vice President of R&D, CAS CAS Annual Meeting November 2004

  2. GE Insurance Solutions protects people, property and reputations. With over $50bn in combined assets, the GE Insurance Solutions group of companies is one of the world’s leading providers of commercial insurance, reinsurance and risk management services. PROPRIETARY INFORMATION NOTICE The information contained in this document is the property of Employers Reinsurance Corporation, a member of the GE Insurance Solutions group of companies. It should not be reprinted, redistributed or disclosed to others without the express written consent of ERC.

  3. Bottom Line Message (“Takeaway”) • Actuaries are already practicing ERM • Actuaries must learn about ERM • Actuaries must reframe our traditional roles as part of the larger ERM context • Actuaries must prepare to be part of the new Risk Profession (whatever it looks like)

  4. Benchmarking ERM Practices in a Derivatives Firm

  5. ERM Best practices from leading industries Resource: The Practice of Risk Management, Goldman Sachs (GS), Risk Books, 1996 Securities firm risk management market standard reference Insurers and reinsurers sell derivative-like products Long-dated, illiquid, OTC derivatives on untraded underlyings Learn from GS how to manage risk of a derivatives portfolio Model Standards and Risk Management Not taking any position regarding the accounting treatment of insurance products and embedded options

  6. GS: Structure and Skills of Centralized Risk Mgmt Group • Risk Monitoring and Analysis • Quantitative Analysis • Price Verification • Model Development • Systems Development and Integration

  7. Derivatives Risk Management

  8. Derivatives Risk Management

  9. Derivatives Risk Management

  10. GS Risk Management PrinciplesNo Self-Marked Portfolios • Self-marked (to market) = self-valued portfolios • Where there may be conflict of interest, incentives to overstate profitability • Sound corporate governance and controls • Peer review from expert source increases credibility • GS has Derivative Price Verification Group • Specialized pricing support to areas with difficult-to-value derivatives

  11. Next Steps Implied By This? • Actuaries are already practicing ERM • Actuaries must learn about ERM • Actuaries must reframe our traditional roles as part of the larger ERM context • Actuaries must prepare to be part of the new Risk Profession (whatever it looks like)

  12. Operational Risk

  13. Per Basel II, Operational Risk is what is left over in a bank when you have eliminated market and credit risk. Risk of loss due to failures of internal processes or controls, or external events Property-Casualty actuaries are experts in “insured operational risk” (at least in commercial insurance) Banks are looking for insurance to cover operational risk, so they can reduce their Basel II required capital Operational Risk – Defined

  14. Article from January 2005 issue of Operational Risk magazine (see www.operationalriskonline.com), by THE thought leader in operational risk in financial services, Dr. Ali Samad-Khan. Presents a serious challenge to the COSO ERM framework (COSO = Committee of Sponsoring Organizations; see www.coso.org). The COSO framework is the most highly visible ERM document in the public domain. COSO’s recommended operational risk assessment measure is “likelihood-impact” = product of likelihood and impact as the key determinant of “riskiness.” Operational Risk – Opportunity for CAS Leadership

  15. Dr. Khan explains why this metric is so flawed, and why an actuarial approach is superior: he mentions evaluation of historical loss information by risk experts, development of frequency and severity distributions, and convolution to get an aggregate distribution. This article represents an unsolicited endorsement of the profession and its value in properly assessing operational risk. It highlights how actuaries, and casualty actuaries in particular, may actually be de facto professional leaders in the operational risk space, because of core franchise values: training, experience, and techniques. Operational Risk – Opportunity for CAS Leadership

  16. Thank you for your attentionQ&A

More Related