Current CAS Initiatives Robert F. Wolf, FCAS, MAAA CAS Board of Directors Casualty Actuaries of the Southeast (CASE) Fall 2005 Meeting, October 10, 2005

Current CAS Current CAS Initiatives Initiatives Robert F. Wolf, FCAS, MAAA

CAS Board of Directors

Casualty Actuaries of the Southeast (CASE)Fall 2005 Meeting, October 10, 2005

Ritz-Carlton Hotel at BuckheadAtlanta, GA

Monday, October 10, 2005

AgendaAgenda CAS Centennial GoalCAS Centennial Goal

ERM InitiativesERM Initiatives

Research Working Parties Research Working Parties

Other TopicsOther Topics Task Force on Actuarial Credibility Task Force on Actuarial Credibility

Task Force on Publications Task Force on Publications

Basic Education InitiativesBasic Education Initiatives

Continuing EducationContinuing Education

Image of the Actuary CampaignImage of the Actuary Campaign

Your InputYour Input

CAS Centennial GoalCAS Centennial Goal

The CAS will be The CAS will be globallyglobally recognized as recognized as the preeminent resource in educating the preeminent resource in educating casualty actuaries and conducting casualty actuaries and conducting research in casualty actuarial science. research in casualty actuarial science. CAS members will be recognized as the CAS members will be recognized as the leading experts in the evaluation of leading experts in the evaluation of hazard risk and the hazard risk and the integrationintegration of of hazard risk with strategic, financial and hazard risk with strategic, financial and operational risk.operational risk.

Implementing the Implementing the Centennial GoalCentennial Goal

Centennial Goal Implementation Task ForceCentennial Goal Implementation Task Force Subcommittee of Long Range Planning Subcommittee of Long Range Planning

CommitteeCommittee Working with Vice Presidents and Committee Working with Vice Presidents and Committee

Chairs in setting goals.Chairs in setting goals. How does my committee and its goals support How does my committee and its goals support

the Centennial Goal?the Centennial Goal? SAM GoalsSAM Goals

SSignificant, ignificant, AAttainable, ttainable, MMeasurableeasurable Interim milestones to help gauge progress Interim milestones to help gauge progress

towards the Centennial Goal.towards the Centennial Goal.

ERM InitiativesERM Initiatives During its March 2005 meeting, the CAS During its March 2005 meeting, the CAS

Board took actions to help the actuarial Board took actions to help the actuarial profession benefit from new opportunities profession benefit from new opportunities in Enterprise Risk Management (ERM)in Enterprise Risk Management (ERM) Approved Joint CAS/SOA Risk Management Approved Joint CAS/SOA Risk Management

Section.Section. Launched partnership with Enterprise Risk Launched partnership with Enterprise Risk

Management Institute International, Ltd. Management Institute International, Ltd. (ERMII). (ERMII).

Created new Vice President-Risk Integration Created new Vice President-Risk Integration position to oversee ERM-related activities.position to oversee ERM-related activities.

Risk Management Risk Management SectionSection

Similar to the existing CAS special Similar to the existing CAS special interest sections CARe and AIR.interest sections CARe and AIR.

Both CAS and SOA members are Both CAS and SOA members are eligible to serve on the Council that eligible to serve on the Council that guides the activities of the Section.guides the activities of the Section.

Members are encouraged to join the Members are encouraged to join the Section. Annual dues are only $20.Section. Annual dues are only $20.

Look for the check box on the CAS Look for the check box on the CAS dues notice in October.dues notice in October.

Other ERM Other ERM InitiativesInitiatives

ERMII is a private, not-for-profit, ERMII is a private, not-for-profit, independent educational and research independent educational and research organization led by CAS Fellow Shaun organization led by CAS Fellow Shaun Wang.Wang.

ERMII is co-sponsored by an ERMII is co-sponsored by an international group of universities and international group of universities and professional organizations including professional organizations including Georgia State University, University of Georgia State University, University of New South Wales, University of Illinois, New South Wales, University of Illinois, Wuhan University (China), and the CAS.Wuhan University (China), and the CAS.

VP-Risk Integration to oversee and VP-Risk Integration to oversee and coordinate ERM-related activities. coordinate ERM-related activities.

CAS Strategies CAS Strategies

Take the Lead – More vigorous effortTake the Lead – More vigorous effort Expansion of ResearchExpansion of Research PublicationsPublications Public RelationsPublic Relations

A Though (Idea)-A Though (Idea)- Develop Global Journal of ERMDevelop Global Journal of ERM Joint Sponsorship with ERMIIJoint Sponsorship with ERMII Outreach to all ProfessionsOutreach to all Professions Research Topics, such as Operational RiskResearch Topics, such as Operational Risk

CAS ERM DefinitionCAS ERM Definition

““The discipline by which an The discipline by which an organization in any industry assesses, organization in any industry assesses, controls, exploits, finances and monitors controls, exploits, finances and monitors risk from all sources for the purpose of risk from all sources for the purpose of increasing the organization’s short- and increasing the organization’s short- and long-term value to its stakeholders”long-term value to its stakeholders”

Key elements:Key elements: Dual nature of riskDual nature of risk Value creationValue creation

Risk TypeRisk Type

StrategicStrategic OperationalOperational FinancialFinancial HazardHazard

StrategicStrategic OperationalOperational FinancialFinancial HazardHazard

Risk ManagementProcess Step

Risk ManagementProcess Step

Establish contextEstablish context Identify risksIdentify risks Analyze/quantify risksAnalyze/quantify risks Integrate risksIntegrate risks Assess/prioritize risksAssess/prioritize risks Treat/exploit risksTreat/exploit risks Monitor and reviewMonitor and review

Establish contextEstablish context Identify risksIdentify risks Analyze/quantify risksAnalyze/quantify risks Integrate risksIntegrate risks Assess/prioritize risksAssess/prioritize risks Treat/exploit risksTreat/exploit risks Monitor and reviewMonitor and review

CAS ERM CAS ERM Conceptual Conceptual

Framework: Two Framework: Two DimensionsDimensions

Actuarial Actuarial Techniques in the Techniques in the

Broader ERM WorldBroader ERM WorldCredit RiskCredit Risk One of the established One of the established

methods is called the methods is called the ““actuarial methodactuarial method””

# of borrowers by rating # of borrowers by rating category = exposurecategory = exposure

Default rate by rating Default rate by rating category = frequencycategory = frequency

Defaults = claim countDefaults = claim count Loss given default = Loss given default =

severityseverity

Operational RiskOperational Risk Basically an internal Basically an internal

actuarial study of loss-actuarial study of loss-generating eventsgenerating events

State-of-the-art is basically State-of-the-art is basically re-created “re-created “Basics of Basics of Actuarial Analysis”Actuarial Analysis”

Dr. Ali Samad-Khan’s Dr. Ali Samad-Khan’s presentation from the 2004 presentation from the 2004 ERM SymposiumERM Symposium

www.casact.org/coneduc/ermwww.casact.org/coneduc/erm/2004/handouts/samad-khan./2004/handouts/samad-khan.pdfpdf

http://www.casact.org/coneduc/erm/2004/handouts/samad-khan.pdf



Modeling WorkshopModeling Workshop Education in risk integration techniques is Education in risk integration techniques is

consistent with Centennial Goal.consistent with Centennial Goal. DFA added to Syllabus in 2000.DFA added to Syllabus in 2000. DFA taken off Exam 8 in 2003 due to inability DFA taken off Exam 8 in 2003 due to inability

to test in a paper-and-pencil environment.to test in a paper-and-pencil environment. Modeling Workshop Task Force Modeling Workshop Task Force

established.established. Piloting a hands-on workshop experience, with Piloting a hands-on workshop experience, with

the final pilot conducted with new Fellows in the final pilot conducted with new Fellows in May 2005.May 2005.

Consider adding this as a future FCAS Consider adding this as a future FCAS requirement and/or continuing education requirement and/or continuing education opportunity. opportunity.

FCAS EducationFCAS Education

Task force established in late 2004 to Task force established in late 2004 to recommend “Learning Objectives” for what recommend “Learning Objectives” for what it means to be an FCAS in the year 2014.it means to be an FCAS in the year 2014.

ConsiderationsConsiderations Perhaps reducing total number of exams by one Perhaps reducing total number of exams by one

(i.e., 8 exams plus VEE).(i.e., 8 exams plus VEE). include a mandatory workshop (e.g., DFA include a mandatory workshop (e.g., DFA

Modeling Workshop).Modeling Workshop). Final Recommendations due to CAS Board Final Recommendations due to CAS Board

in November 2005.in November 2005.

Research Working Research Working PartiesParties

2003-042003-04 Correlations and Dependencies Correlations and Dependencies

Among All Risk Sources Among All Risk Sources Executive-Level Decision-Making Executive-Level Decision-Making

Using Dynamic Risk ModelingUsing Dynamic Risk Modeling Elicitation and Elucidation of Risk Elicitation and Elucidation of Risk

Preferences Preferences Quantifying Variability in Reserves Quantifying Variability in Reserves

EstimatesEstimates


2004-052004-05 Dynamic Risk Modeling Handbook Dynamic Risk Modeling Handbook Public-Access DFA Model Public-Access DFA Model Bornhuetter-Ferguson - Initial Bornhuetter-Ferguson - Initial

Expected LossesExpected Losses Tail FactorsTail Factors Risk Transfer TestingRisk Transfer Testing

Bottom LineBottom Line

1.1. Actuaries are the top candidates for Actuaries are the top candidates for ERM leadership in insurance and ERM leadership in insurance and pensionspensions

2.2. We need to stop thinking protectionist We need to stop thinking protectionist and embrace expansion fearlessly and and embrace expansion fearlessly and confidently confidently

3.3. Let’s lead, not followLet’s lead, not follow

4.4. Actuaries must reframe traditional Actuaries must reframe traditional roles as part of the larger ERM roles as part of the larger ERM contextcontext

Other Topics of Other Topics of InterestInterest

Your Inputs are WelcomeYour Inputs are Welcome

Task Force on Task Force on Actuarial CredibilityActuarial Credibility

Established to identify, prioritize, Established to identify, prioritize, and investigate the feasibility of and investigate the feasibility of possible strategies for enhancing the possible strategies for enhancing the perceived credibility of the actuarial perceived credibility of the actuarial profession and to develop action profession and to develop action plans for implementation of those plans for implementation of those strategies considered to have the strategies considered to have the greatest potential for high impact.greatest potential for high impact.


1.1. Enhance the transparency of the Enhance the transparency of the actuary’s conclusions by clearly actuary’s conclusions by clearly identifying differences between identifying differences between management’s “best estimate” and the management’s “best estimate” and the actuary’s “best estimate.”actuary’s “best estimate.”

2.2. Enhance the public’s understanding of Enhance the public’s understanding of actuarial estimates.actuarial estimates.

3.3. Improve the transparency of disclosures Improve the transparency of disclosures by requiring that the actuarial report by requiring that the actuarial report contain an exhibit that summarizes contain an exhibit that summarizes changes in the actuary’s estimates from changes in the actuary’s estimates from one period to the next.one period to the next.


4.4. Enhance the quality of corporate governance Enhance the quality of corporate governance by educating audit committees or board of by educating audit committees or board of directors or both on the roles and directors or both on the roles and responsibilities of the appointed actuary.responsibilities of the appointed actuary.

5.5. Enhance the self-governance of the profession Enhance the self-governance of the profession by requiring the appointed actuary to provide by requiring the appointed actuary to provide an explanatory document with the ABCD an explanatory document with the ABCD whenever the change in the actuary’s reserve whenever the change in the actuary’s reserve estimates over a defined period exceeds estimates over a defined period exceeds certain predetermined thresholds..certain predetermined thresholds..

6.6. Elevate the unique role of the appointed Elevate the unique role of the appointed actuary within the statutory financial reporting actuary within the statutory financial reporting environment by incorporating an Actuarial environment by incorporating an Actuarial Statement within the Jurat Page of each Statement within the Jurat Page of each company’s Annual Statement.company’s Annual Statement.


Task Force Report presented to the CAS Task Force Report presented to the CAS Board in May 2005.Board in May 2005.

Board accepted the Report and directed Board accepted the Report and directed the Executive Council to consider the the Executive Council to consider the recommendations and implement them as recommendations and implement them as appropriate.appropriate.

Follow-up report due to Board in Follow-up report due to Board in November 2005.November 2005.

Report available on CAS Web Site.Report available on CAS Web Site. Member comments and input are welcome.Member comments and input are welcome.

Task Force on Task Force on PublicationsPublications

1.1. Remove papers from PCAS. Keep CAS-Remove papers from PCAS. Keep CAS-specific content and add Yearbook specific content and add Yearbook content.content.

2.2. Create a yearly Membership Directory Create a yearly Membership Directory publication as a separate soft-cover publication as a separate soft-cover publication.publication.

3.3. Create a new journal called the Create a new journal called the Journal of Journal of Casualty Actuarial Science Casualty Actuarial Science where where refereed papers will be published.refereed papers will be published.

4.4. Encourage non-CAS members to publish Encourage non-CAS members to publish in the in the Journal; Journal; actively solicit articles from actively solicit articles from around the world around the world

Task Force on Task Force on PublicationsPublications

5.5. Continue to publish the Continue to publish the ForumForum in hardcopy if it is in hardcopy if it is economically feasible and subscribing members economically feasible and subscribing members pay the full cost of producing and distributing it.pay the full cost of producing and distributing it.

6.6. Change the name of the Change the name of the Forum Forum to to The Forum: A The Forum: A Clearinghouse for Expressing Ideas and Clearinghouse for Expressing Ideas and Stimulating DiscussionStimulating Discussion..

7.7. Create a process to publish monographs (e.g., Create a process to publish monographs (e.g., collections of study notes, call papers of collections of study notes, call papers of particularly high quality and focused on one particularly high quality and focused on one topic).topic).

8.8. Produce an international monograph in 2007 to Produce an international monograph in 2007 to commemorate the ASTIN Colloquium.commemorate the ASTIN Colloquium.

Basic EducationBasic Education

Starting Spring 2005Starting Spring 2005 Prerequisites: Linear Algebra and Prerequisites: Linear Algebra and

CalculusCalculus Validation by Educational Experience: Validation by Educational Experience:

Economics, Finance, Applied StatsEconomics, Finance, Applied Stats Exam 1: Probability with Calculus (3 Exam 1: Probability with Calculus (3

hours)hours) Exam 2: Interest (2 hours)Exam 2: Interest (2 hours) Exam 3: Actuarial Models & Statistics (4 Exam 3: Actuarial Models & Statistics (4

hours)hours) Exam 4: Actuarial Modeling (4 hours)Exam 4: Actuarial Modeling (4 hours)

VEE OptionsVEE Options

1.1. Approved university course (grade Approved university course (grade of B- or better)of B- or better)

2.2. Approved exams (e.g., AP exams for Approved exams (e.g., AP exams for Micro and Macroeconomics, CFA Micro and Macroeconomics, CFA exams, CAS transitional exams).exams, CAS transitional exams).

3.3. Other approved experiences Other approved experiences (courses/seminars designed (courses/seminars designed specifically for VEE credit.)specifically for VEE credit.)

Computer Based Computer Based TestingTesting

Candidates take exam at a Candidates take exam at a standardized testing center.standardized testing center.

Can schedule exam any time during Can schedule exam any time during a specified period (e.g., three days).a specified period (e.g., three days).

Software tutorial provided online Software tutorial provided online and before exam begins.and before exam begins.

User friendly software with easy User friendly software with easy navigation.navigation.

Potential for immediate grading.Potential for immediate grading.

CBT Implementation CBT Implementation for Exam 1for Exam 1

May 2005 - standard paper and pencil May 2005 - standard paper and pencil exam.exam.

September 2005 - CBT (paper and pencil September 2005 - CBT (paper and pencil backup for areas without CBT centers).backup for areas without CBT centers).

November 2005 - no exam.November 2005 - no exam. 2006 - 4 to 6 CBT administrations.2006 - 4 to 6 CBT administrations. Immediate release of grades beginning Immediate release of grades beginning

some time in 2006.some time in 2006. Rollout to other exams in future years.Rollout to other exams in future years.

Code of Professional Code of Professional ConductConduct

Beginning in 2006, candidates taking Beginning in 2006, candidates taking CAS Exams 3, and 5-9 will be required to CAS Exams 3, and 5-9 will be required to agree to abide by the terms and agree to abide by the terms and conditions of the CAS Code of conditions of the CAS Code of Professional Conduct.Professional Conduct.

Recognizes that candidates who have not Recognizes that candidates who have not yet achieved Associateship perform yet achieved Associateship perform responsible actuarial work and that this responsible actuarial work and that this work should be done within the work should be done within the framework of the Code.framework of the Code.


Research “task forces” Research “task forces” Process should result in quality Process should result in quality

work products.work products. Brings together the research Brings together the research

energy of individual researchers.energy of individual researchers. Proven to be effective for GIRO, Proven to be effective for GIRO,

the general insurance research the general insurance research organization of the Faculty and organization of the Faculty and Institute of Actuaries (UK).Institute of Actuaries (UK).

Continuing Continuing EducationEducationAAA Exposure Draft recommends that the AAA Exposure Draft recommends that the

Qualification Standards apply to all Qualification Standards apply to all “statements of actuarial opinion” defined as “statements of actuarial opinion” defined as follows:follows:

… … an opinion expressed by an actuary based upon an opinion expressed by an actuary based upon actuarial considerations, and intended by the actuarial considerations, and intended by the actuary to be relied upon by the outside person or actuary to be relied upon by the outside person or organization to whom the opinion is addressed. The organization to whom the opinion is addressed. The phrase “outside” person or organization refers to phrase “outside” person or organization refers to persons or organizations other than the actuary’s persons or organizations other than the actuary’s direct employer.direct employer.

A statement of actuarial opinion, although A statement of actuarial opinion, although usually conveyed in writing, may also be usually conveyed in writing, may also be conveyed orally.conveyed orally.

2005-06 Calendar of 2005-06 Calendar of EventsEvents

Seminar for the Appointed Actuary Seminar for the Appointed Actuary (with the CIA), September 22-23, (with the CIA), September 22-23, MontréalMontréal

CAS Annual MeetingCAS Annual MeetingNovember 13-16, Baltimore, MDNovember 13-16, Baltimore, MD

Online Course on Financial Risk Online Course on Financial Risk ManagementManagementNovember 4-20, CAS Web SiteNovember 4-20, CAS Web Site

2006 Seminar on Ratemaking2006 Seminar on RatemakingMarch 13-14, Salt Lake CityMarch 13-14, Salt Lake City

Image of the Actuary Image of the Actuary CampaignCampaign

Profession-wide campaign.Profession-wide campaign. Image Advisory Group, made up of members from Image Advisory Group, made up of members from

each of the North American actuarial organizations, each of the North American actuarial organizations, oversees campaign.oversees campaign.

Campaign kick-off CD ROM sent to all actuaries.Campaign kick-off CD ROM sent to all actuaries. www.imageoftheactuary.org/www.imageoftheactuary.org/ for more information. for more information.

http://www.imageoftheactuary.org/

I welcome your I welcome your input regarding . . .input regarding . . .

CAS Centennial GoalCAS Centennial Goal ERM InitiativesERM Initiatives Task Force on Actuarial CredibilityTask Force on Actuarial Credibility Basic Education InitiativesBasic Education Initiatives Research and PublicationsResearch and Publications Continuing EducationContinuing Education International IssuesInternational Issues What’s On Your Mind?What’s On Your Mind? Questions?Questions?

Thank You!Thank You!

Robert F. Wolf, FCAS, MAAAPrincipal, Mercer Oliver Wyman10 South Wacker Drive, Suite 1700Chicago, IL 60606-7500312 930 0648 Fax 312 930 0641Mobile 312 560 [email protected]

Documents

Current CAS Initiatives Robert F. Wolf, FCAS, MAAA CAS Board of Directors Casualty Actuaries of the Southeast (CASE) Fall 2005 Meeting, October 10, 2005