Tag Archives: actuary

Climate change ranks as humanity’s top challenge – now what?

Climate change is one of a number of interconnected risks threatening the stability of the global financial system. This year, for the first time, the World Economic Forum ranked it as the top challenge facing humanity. This issue has not gone away amid COVID-19, which has exposed how actions in one country can have direct consequences for the whole world.

In this article, Milliman’s Neil Cantle and Nancy Watkins, along with The Oracle Partnership’s Peter Kingsley, discuss the role actuaries and insurers can play in tackling climate change following the coronavirus crisis.

What is the extent of spreadsheet usage by insurers?

Spreadsheets are powerful, versatile and accessible to almost anyone. It is no surprise, therefore, that across all business functions actuaries and other insurance professionals consistently turn to spreadsheets to perform a wide variety of tasks of differing complexity and materiality, ranging from performing simple calculations to using spreadsheets as tools to inform key business decisions.

Milliman has surveyed nearly 200 life actuaries and insurance professionals to understand the way they use spreadsheets in their work, including looking at potential improvements that could be made to this important tool. In this article, Milliman’s Stuart Reynolds, William Smith, and Jennifer Strickland analyse the results of this survey, highlight our key findings and consider the benefits and risks arising from a reliance on spreadsheets.

Actuarial education needed in the Middle East

Most actuarial work within the Middle East is undertaken by actuaries from outside the region. Primarily, the work is performed by actuaries from Europe and South Asia.

One of the main reasons for the shortage of actuaries in the Middle East is the historical lack of recognition for the profession. This situation has been changing gradually over the past five to 10 years due to changes in regulation and a move towards risk-based culture. These recent changes have provided an impetus to the actuarial profession in the region and have resulted in more locals joining the profession.

Despite the increased demand, growth rates have been modest because of the limited availability of actuarial courses at the university level, especially those taught in the local language. Currently, there are only a few countries in the Middle East offering university-level actuarial science programs.

In this article, which originally appeared in the September 2018 issue of International News, published by the Society of Actuaries, Milliman’s Dana Barhoumeh discusses in greater depth the actuarial field in the Middle East.

How can self-insureds benefit from independent actuarial services?

Companies should try to avoid any conflict of interest when subscribing to the principles under the Sarbanes-Oxley Act. When determining if an actuarial firm is independent, a company can ask two questions: Is the actuarial firm a provider of another service to your company? Does the firm present any possible conflicts?

In the article “Why independence matters in actuarial services,” Milliman’s Richard Frese and Tony Bloemer discuss how actuaries in various roles interact with key decision-makers and the business benefits of working with an independent actuary.

The actuary and enterprise risk management: Integrating reserve variability

The first step in managing reserve risk is measuring that risk. Risk management is linked to risk monitoring, measurement, and reporting. The quality of measurement and reporting often determines to what extent monitoring is possible.

Routinely assessing reserve variability, as part of the regular reserve analysis process, can greatly benefit the risk management process. Integrating elements of reserve risk measurement within a continuously monitored enterprise risk management (ERM) framework can offer a number of advantages to your organization, including, but not limited to:

1. Ensuring that reserving assumptions are tracked and validated over time and that changes in those assumptions are justified relative to performance.

2. Formalizing the governance around the process (i.e., clear assignment of risk ownership and consistent, accurate, and auditable controlling of deterministic methods, stochastic models, and actuarial methodology, etc.).

3. Providing a framework that allows actuarial resources to assess the effectiveness of the distributions of possible outcomes resulting from the reserve variability analyses (e.g., approximately 10% of observations as of each valuation date should fall within the highest and lowest 5% of the distribution of possible outcomes).

4. Providing a framework that includes an early warning system that translates actual outcomes of paid and outstanding loss into likely reserve estimate changes prior to any analysis.

5. Enabling management to use key performance indicators (KPIs) to anticipate the results of future actuarial analyses and better understand and assess how prior assumptions have held up.

6. Providing a framework that allows both managers to efficiently allocate actuarial resources (e.g., assigning the most experienced resources to the most challenging segments) and actuarial resources to hypothesize whether deviations are the result of a mean estimation error, a variance estimation error, or a random error.

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Implementing new model governance frameworks starts with people

Companies that focus on the human side of organizational change can standardize their model governance more effectively. It’s important to foster a collaborative environment and communicate a new model governance framework in simple terms to garner support from stakeholders. In his second article on model governance, Milliman’s Brian Fomby explains how organizations can establish consensus around a new model governance framework.

Here is an excerpt:

As more people take interest in the success of the overall modeling effort, it is essential that stakeholders come along for the governance ride. Those who do not have the opportunity to provide input or be a part of designing a new model governance framework may reject the new paradigm as too complex and too time consuming. It is important to give them formal opportunities to contribute ideas and be included in designing, developing, and implementing the solution.

This creates a sense of “buy-in.” Because they have had the opportunity to shape its creation, they are more willing to embrace the solution—not least because, ideally, their input has been incorporated in such a way as to create the most harmony with established ways of working. Instead of being told what to do, people will grow to embrace model governance because it helps them do their work more effectively….

When implementing new model governance and during the actual modeling activities themselves, it can be helpful to use a flexible approach that has more in common with contemporary software development than heavy-handed organization-change procedures of the past. Known formally as the Agile methodology, this approach can be an effective way to simplify participation with stakeholders. Features of Agile that can support improved collaboration include:

• Regular peer reviews in real-time, short, practical “sprints” rather than long, infrequent, information-packed meetings.
• Spreading work among more people, which increases the number of eyes on a given element to reduce risk and moves the process forward instead of getting stuck in bottlenecks caused by individuals’ changing workloads, schedules, or priorities.
• More emphasis on delivering value over endless planning. This often results in experimentation and rapid prototyping rather than feeling a need for perfection in the first iteration. This type of “fail fast” mindset will naturally surface potential issues sooner rather than later.
• Breaking documentation (critical in light of ever-changing regulations and modeling environments) into manageable deliverables that are completed along the way rather than all at once at the end. This not only makes documentation more manageable but also improves quality by capturing more details to provide greater value to future users and auditors.
• The identification and execution of quick wins to engender support and build enthusiasm. By celebrating these successes, positive momentum will be built.

To learn how automated technology can ease the implementation and management of model governance read Brian’s article “Actuarial model governance: Empowering people with technology.”