Institute Of Actuaries Research Articles

A Conversation With Paul Embrechts

SummaryPaul Embrechts was born in Schoten, Belgium, on 3 February 1953. He holds a Licentiaat in Mathematics from Universiteit Antwerpen (1975) and a DSc from Katholieke Universiteit Leuven (1979), where he was also a Research Assistant from 1975 to 1983. He then held a lectureship in Statistics at Imperial College, London (1983–1985) and was a Docent at Limburgs Universitair Centrum, Belgium (1985–1989) before joining ETH Zürich as a Full Professor of Mathematics in 1989, where he remained until his retirement as an Emeritus in 2018. A renowned specialist of extreme‐value theory and quantitative risk management, he authored or coauthored nearly 200 scientific papers and five books, including the highly influential ‘Modelling of Extremal Events for Insurance and Finance’ (Springer, 1997) and ‘Quantitative Risk Management: Concepts, Techniques and Tools’ (Princeton University Press, 2005, 2015). He served in numerous editorial capacities, notably as Editor‐in‐Chief of the ASTIN Bulletin (1996–2005). Praised for his natural leadership and exceptional communication skills, he helped to bridge the gap between academia and industry through the foundation of RiskLab Switzerland and his sustained leadership for nearly 20 years. He gave numerous prestigious invited and keynote lectures worldwide and served as a member of the board of, or consultant for, various banks, insurance companies and international regulatory authorities. His work was recognised through several visiting positions, including at the Oxford‐Man Institute, and many awards. He is, inter alia, an Elected Fellow of the Institute of Mathematical Statistics (1995) and the American Statistical Association (2014), an Honorary Fellow of the Institute and the Faculty of Actuaries (2000), Honorary Member of the Belgian (2010) and French (2015) Institute of Actuaries and was granted four honorary degrees (University of Waterloo, 2007; Heriot‐Watt University, 2011; Université catholique de Louvain, 2012; City, University of London, 2017). The following conversation took place in Paul's office at ETH Zürich, 17–18 December 2018.

Rectangularisation Issues in Health Economics & Insurance: Measures and Mitigations

Aim: Actuaries are financial engineers who construct arrays of risk models combining mathematical techniques in order to carry out required actuarial calculations, such as reserve valuation and pricing. The main purpose is to identify some reliable models which price risk factors embedded in insurance products. Health insurance products which are very different in nature from life insurance products must be examined and priced carefully. This paper discusses predominantly two risks. Excess claims ratio and Rectangularisation risks. Background: The first author, Dr. S. Jayaprakash was responsible for Enterprise Risk Management with MetLife India. He was earlier associated with Life Insurance Corporation of India & Oracle Financial Services. Dr. P. K. Dinakar, the second author, qualified as Fellow of the Institute of Actuaries of India, was Chief Actuary of MetLife India Insurance. He was earlier associated with Life Insurance Corporation of India & Birla Sunlife. The third author, Dr. Michael Ha, FSA, MAAA, CFA, CPA (Australia), FRM, PRM, LLM, was Vice President of Strategic Business Initiatives Units at ING Life Insurance in its Taiwan operation. He started his actuarial career at MetLife, Canada. Earlier, the first and third authors worked on a research paper titled “Modeling Policyholder Behavior through Insurance Resonant Marts for Pricing Options and Guarantees” [1] which was presented at the 5th World Congress on Engineering and Technology. The seven authors decided to collaborate on the current research paper for health insurance design and financing purposes.

A Meta-study of the General Insurance Reserving Issues Taskforce and Reserving Oversight Committee Research in this area between 2004 and 2009

AbstractThe General Insurance Board of the Faculty and Institute of Actuaries responded to some of the criticisms raised in the Morris review of the Actuarial Profession and in the press by rating agencies and others, regarding the Actuarial Profession's approach to actuarial reserving in general insurance by setting up a taskforce known as the General Insurance Reserving Issues Taskforce (GRIT). The taskforce worked from 2004 to 2006 and produced a significant report, including some new professional content and recommendations for further areas of development and research. Since then, through the GRIT successor body: the Reserving Oversight Committee (ROC), many working parties have formed and many General Insurance Research Organisation (GIRO) presentations and papers have been forthcoming. One area that has been a recurring theme through the last five years is how the Profession models and communicates the uncertainty in the claims reserving process. In the context of recent events in global financial markets, the forthcoming new regulatory framework of Solvency II, and the developments in other professions globally through IFRS and other drivers, it is timely that actuaries take stock of the many changes in our practices over the last five years and consider the direction actuaries should take for the challenges that lie ahead. This paper is a meta-study of the output of GRIT and ROC on reserving and uncertainty, with the intention of meeting these objectives.

Management Actions in a With-Profits Fund Discussion held at the Faculty of Actuaries

The text of this paper, together with the abstract of the discussion held by the Institute of Actuaries on 24 November 2008, are printed in British Actuarial Journal, 15, II.

Dynamic Asset Allocation Techniques. Discussion held at the Institute of Actuaries

The President (Mr N. B. Masters, F.I.A.): The subject of this evening is a paper by Adrian Lawrence, Stuart Jarvis and Sheng Miao on Dynamic Asset Allocation Techniques, very much a flavour of the day at the moment as we struggle with the gyrations of both the stock market and interest rates. If I may, I will ask Dr Jarvis to introduce the paper.Dr S. J. Jarvis, F.I.A.: We are acutely aware that the paper has not been finalised yet and so thank you in advance for any help you can give us this evening in improving our paper.In the absence of the final paper, we are going to spend a bit longer than is normal at these meetings to describe what our paper consists of and why we have written what we have written.I am going to start off by talking about some of our motivations. The paper is a fairly technical paper. It focuses on investment, but our motivation comes from applications so we will spend a bit of time talking about those first. We will then talk about the formulation of problems, and some of the techniques that we apply to look at them. That is the focus of the paper—the methods that we found useful. Finally we will talk through some of our results.

Governance and Risk Management in United Kingdom Insurance Companies. Discussion held at the Institute of Actuaries

Mr M. R. Kipling, F.I.A.: This paper is entitled Governance and Risk Management in United Kingdom Insurance Companies. It is a very timely paper in light of the recent publication of the Turner review which, among other things, covers the governance of UK financial institutions.Mr S. P. Deighton, F.I.A. (introducing the paper): The paper is the first formal output from the Research and Thought Leadership subcommittee of the Enterprise Risk Management (ERM) Practice Executive Committee (PEC). It may seem odd, therefore, that it contains no original research. There is not an equation in sight, and there is only one token diagram. This is because the most important of its key themes is that there is much more to ERM than complex models and fancy mathematics.There are a number of areas associated with ERM. One of them is understanding the wider governance framework within which an insurance company must operate, and hence the introduction to that subject at the beginning of the paper. The second is how to run the very detailed identification and mitigation of the myriad of small risks across a wide group which is at the other end of the spectrum to the multi-million pound derivative transactions that manage equity risk. Our paper sees this as indistinguishable from the internal control framework that a company needs in order to comply on the governance front.

Disease Management Programmes for Major Depression: Making the Financial Case. Discussion held at the Institute of Actuaries

The Vice-President (Mr S. Creedon, F.I.A.): This evening we have an unusual, but very welcome, and excellent, paper from Mrs Joanne Buckle, who is going to introduce the key concepts for the paper to us.Mrs J. L. Buckle, F.I.A.: This topic is close to my heart and I am not going to spend a lot of time talking about the paper per se. What I want to do is spend some time talking about some of the key concepts in the paper, and also to try to steer the discussion in a way that will reflect the differences between the approaches that health economists take to these kinds of questions and the approach that actuaries take, and how those two approaches can be reconciled.I should explain a little bit about my background and about the background to this paper. I originally wrote this paper as part of my health economics postgraduate dissertation, so it was very health-economics focused. I was marked down for introducing too many actuarial concepts. The academic health economists were not very happy with my focus on return on investment and lack of focus on quality adjusted life years. And that was part of an eye-opening experience of doing my health economics postgraduate course.

Management Actions in a With-Profits Fund. Abstract of the Discussion held by the Institute of Actuaries

Management Actions in a With-Profits Fund. Abstract of the Discussion held by the Institute of Actuaries

100 Years of State Pension: Learning from the Past. Discussion Held at the Institute of Actuaries

Mr A. A. S. Bryans, F.I.A.(introducing the book): On behalf of the authors, I am delighted to start this presentation of our book ‘100 Years of State Pension’. The book has taken us over two years to produce, with it finally arriving from the printers on 15 January 2009. This meeting is the launch of the book.The agenda for the meeting is for me to give you a presentation about the book. Mr Salter will look at some of the themes of the book, and Mr Redman will conclude by setting the scene for the discussion based on our findings. It is then over to you. We look forward to a lively and interesting discussion. At the end, Mr Hewitt, on behalf of the authors, will answer any points raised in the discussion and Mr Ridsdale will close the discussion.

Discussion Held by the Institute of Actuaries

Mr J. B. Orr, F.F.A. (introducing the Steering Group paper): I will take you through some of the background to the scoping study work, the mortality research that was involved, and describe the steering group. Dr Macdonald will talk you through the scoping study. I will talk about the methodology that has been adopted and about an experts' meeting that we held in March. I will provide a brief description of the sessional meeting, and then talk about the October 2009 conference, which we are working towards.

Address by the President of the Institute of Actuaries. Flourishing in a Changing Employment Landscape

ABSTRACTAgainst a background of globalisation, regulatory change and the prospect of a merger with the Faculty of Actuaries, the profession is in a state of renewal. Traditional areas of actuarial expertise are likely to see employment reductions. However, our skills in risk and finance should be in demand. To ensure this we need to maintain the relevance of our examination system, develop the appropriate research resources and CPD offerings, give members the support that they need throughout their careers whilst working with employers to produce the skilled professionals that they require.

A Review of Lifetime Risk Factors for Mortality

ABSTRACTThis review was undertaken for the Faculty and Institute of Actuaries as part of their programme to encourage research collaborations between health researchers and actuaries in order to understand better the factors influencing mortality and longevity. The authors presented their findings in a number of linked sessions at the Edinburgh conference (Joining Forces on Mortality and Longevity) in October 2009 and contributed to this overview. The purpose is to review evidence for the impact on adult mortality of characteristics of the individual's lifetime socioeconomic or psychosocial environment or phenotype at the behavioural; multi-system (e.g. cognitive and physical function); or body system level (e.g. vascular and metabolic traits) that may be common risk factors for a number of major causes of death. This review shows there is growing evidence from large studies and systematic reviews that these individual characteristics, measured in pre-adult as well as the adult life, are associated with later mortality risk. The relative contribution of lifetime environment, genetic factors and chance, whether these contributions change with age, and the underlying social and biological pathways are still to be clarified. This review identifies areas where further life course research is warranted.

The Institute of Actuaries of Australia Part II Course: Some Observations

This paper details the experience at UNSW of teaching the IAA Part 11 course since 2001, and outlines the course structure and teaching and learning approaches adopted. Suggestions of improvements to the course are also made.

Variable Annuities. Abstract of the Discussion Held by the Institute of Actuaries

Variable Annuities. Abstract of the Discussion Held by the Institute of Actuaries

Modelling and Managing Risk

The text of this paper, together with the abstract of the discussion held by the Institute of Actuaries on 30 April 2007, in Manchester, are printed in British Actuarial Journal, 13, III, 579-636.

Options for the development of the education and professional qualification of South African actuaries

This paper investigates the various education and qualification systems available around the world for actuaries, and analyses which actuarial associations rely on their own examinations, those of other bodies, or those of universities. Particular attention is given to the Australian system, which in several ways parallels the South African situation. The paper outlines the pros and possible cons of a local education and qualification system for the actuarial profession in South Africa. Various options currently available to the Actuarial Society of South Africa relating to a local education and qualification system are discussed. Following the withdrawal of the localised final examinations by the Faculty and Institute of Actuaries at the end of 2006, themaintenance of the current system is not an option. Key issues that will need to be addressed if changes are to be made to the South African actuarial education system are highlighted. Keywords : Education; professional qualification; professional designation; actuaries; South Africa South African Acturial Journal Vol. 7 2007: pp. 1-47

General Insurance Premium Rating — The Way Forward. Summary of the Recommendations of the General Insurance Premium Rating Working Party (GRIP)

ABSTRACTThe General Insurance Premium Rating Issues Working Party (GRIP) was established by the General Insurance Board of the Faculty and Institute of Actuaries in 2005 to review actuarial involvement in premium rating issues, pricing being one of the key areas in which actuaries work.GRIP published a full report in January 2007, which is available at www.actuaries.org.uk/grip. This short paper summarises the recommendations of that full report. Further background, discussion and the rationale for these recommendations are set out in more detail in the full report.

Credit Derivatives. Prepared by the Derivatives Working Party of the Faculty and Institute of Actuaries

ABSTRACTThis paper was written by the Derivatives Working Party, a permanent working party of the Life Research Committee of the Institute and Faculty of Actuaries. Our aim is to consider how life assurers may use, or may wish to use, derivatives, and if their use is unduly constrained, e.g. by regulation. This paper focuses on credit derivatives. We provide an overview of the credit derivatives market, and the strong growth in this market over recent years. We then focus on the two main traded credit derivative instruments — Credit Default Swaps (CDSs) and Collateralised Debt Obligations (CDOs). We explain how these instruments work and are priced, and clarify some of the more complex topics involved, such as the settlement of CDSs, basis risk and the relevance of implied correlation in pricing CDOs. We then consider how life insurers could make use of credit derivatives, for example to provide more efficient investment management in taking exposure to credit risk, or to hedge credit exposures, and consider the regulatory implications of so doing. Finally, in the Appendix, we discuss the credit spread puzzle, and the existence or otherwise of a liquidity premium in corporate bond spreads, with implications for the valuation of illiquid liabilities.

Pension Scheme Funding and Sponsor Covenants. A Discussion Meeting

The abstract of the discussion held by the Institute of Actuaries on 30 October 2006 is printed in British Actuarial Journal, 13, I, 61-80.

Address by the President of the Faculty of Actuaries. Respecting the Past, Creating the Future

ABSTRACTThis Presidential Address is delivered towards the end of the 150th anniversary year of the Faculty of Actuaries, and is timed to coincide with the International Actuarial Association and Groupe Consultatif holding meetings in Edinburgh. It deals with the growing globalisation of the Profession, reviews the key developments arising out of the Morris Review and the implications of current changes. It then moves on to examine communication and the role the Profession can play with the media. A comparison between actuarial practice in life and pensions follows, with suggestions for a closer alignment between pension expectation and pension reality. Comment is made about the prospects for healthy life expectancy. Finally, the relationship between the Faculty and the Institute of Actuaries is debated, and a consultation with Faculty members is launched.