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2004 SOA/CAS/Bowles Symposium on ERM

2004 SOA/CAS/Bowles Symposium on ERM. CS 3B - Risk Metrics April 26, 2004 Fred Tavan, FSA, FCIA AVP, Canada Life Re. Overview. Risk Metrics Subgroup Risk Metrics Database Lesson Learned. 2. RMTF Risk Metrics Subgroup. Objectives Regular discussions General consensus

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2004 SOA/CAS/Bowles Symposium on ERM

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  1. 2004 SOA/CAS/Bowles Symposium on ERM CS 3B - Risk Metrics April 26, 2004 Fred Tavan, FSA, FCIA AVP, Canada Life Re.

  2. Overview • Risk Metrics Subgroup • Risk Metrics Database • Lesson Learned 2

  3. RMTF Risk Metrics Subgroup • Objectives • Regular discussions • General consensus • Practical interim solutions to measuring risk 3

  4. RMTF Risk Metrics Subgroup • Mapping of risk metrics to a RM framework • Steps: • Select risk management framework • Develop database data structures • Populate the database • Produce queries/reports on risk metrics 4

  5. RMTF Risk Metrics Subgroup • Key contributors: Cliff Angstman (Berkshire Life) Ellen Hall (ING) David Ingram (Milliman) Julie Perks (Sun Life) David Ruhm (The Hartford) Fred Tavan (Canada Life Re.) 5

  6. Risk Metrics Database • Built using MS Access • Querying and Reporting capabilities • Generates PDF format for SOA distribution • Allows comparison of different RM frameworks • Many-to-one mapping • Provides references to reading material 6

  7. Risk Metrics Database Different Risk Management Frameworks: • AAA • IAA • COSO 7

  8. Risk Metrics Database Fields in the database include: • Risk categories • Risk sub-categories • Risk definitions • Risk Metric • Risk Metric type • Reference Documents • Type of Insurance 8

  9. Risk Metrics Database 9

  10. Risk Metrics Database 10

  11. Risk Metrics Database Current Status: • About 60 different risk metrics identified • Examples: • Lehman Brother’s Political/Economic Risk Index (Sovereign risk) • Changes to spreads (Asset MV risk) • Delta Normal VaR (Currency risk) • Greeks (Basis risk) • SDEV of U/W Ratio (U/W risk) • Parameter Estimation Error (Mortality risk) • First pass complete 11

  12. Risk Metrics Database Next Steps: • Second pass to add reference documents & websites • Populate other fields • Expand on AAA operational risk categories • Continue to add new risk metrics • Add new reports • Move database to SOA website 12

  13. Lessons Learned • Existence of various RM frameworks will lead to reporting inconsistencies • Difficult to apply COSO framework to insurance risks • Difficult to split some of the liability and investment risks • Choice of RM framework will have impact on the types of risk metrics you can use 13

  14. Lessons Learned • Lack of loss data on operational risks prohibit use of statistical methods in the short term • Operational risk modeling still a puzzle for most • AAA framework is weak on operational risk sub-categories 14

  15. Lessons Learned • No single measure/system that aggregates all risks seems to be available yet • Delta Normal VaR appropriate for short-term only • CF models better suited for long-term • DFA type analysis • Monte Carlo VaR/TVaR type analysis • Casualty Hurricane/Earthquake type models 15

  16. End Thanks to all who contributed ! New volunteers welcomed to join! 16

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