Monday, April 26, 2010

CAS Dynamic Risk Modeling Handbook

The CAS Committee on Dynamic Risk Modeling has established a Working Party that is working on updating and completing the Dynamic Risk Modeling Handbook at  The purpose of this handbook is to discuss and provide guidance on the important issues and considerations that confront actuaries when designing, building or selecting Dynamic Risk Models (DRM) of property-casualty risks.  In its “simplest” form, a dynamic risk model can be used to analyze a narrowly defined pricing or reserving risk using stochastic simulation of future cash flows.  In a complex form, a dynamic risk model can be used to analyze the entire cash flow of a corporation, including all aspects of company operations.

The complex form of dynamic risk modeling for an entire insurance operation is commonly referred to as Dynamic Financial Analysis (DFA). Enterprise Risk Management (ERM) focuses on the wider aspect of market, credit, and operational risk of an organization. In the application of ERM to an insurance operation, DFA focuses on the modeling of insurance risks. While many excellent papers have been written on both ERM and DRM, the goal of the Working Party is to distill the essential technical aspects of creating a model into a cohesive document for the practicing actuary as well as the student of risk modeling. The DRM Handbook WP will write Chapters 6 and 7 on Price Modeling and Reserve Modeling and update the remaining chapters.

Thursday, April 15, 2010

Public Access Dynamic Financial Analysis (DFA) Model

The CAS Committee on Dynamic Risk Modeling has updated the Public Access DFA Model, called Dynamo, and made it available on its web site  The Committee finished the 2009 Call for Papers by awarding a prize to authors John Burkett, FCAS, MAAA, PhD, Timothy Pratt, FIAA, MAAA, Gerald Kirschner, FCAS, MAAA, Jennifer Cheslawski, ACAS, MAAA and Diana Rangelova, Fellow, Institute des Actuaires for their paper “Holistic Approach to Setting Risk Limits” which has been published in the CAS 2010 Winter eForum and presented at the 2010 Enterprise Risk Management Symposium.  This paper applied the Dynamo model to test and suggest improvements to a hypothetical company's risk limits (eg, growth rates, retentions within reinsurance program, investment policy statement limits)  from an enterprise wide capital preservation perspective.

Wednesday, April 14, 2010

Open Source Loss Simulation Model

Last year the Casualty Actuarial Society's Loss Simulation Model Working Party (LSMWP) , via the Dynamic Risk Modeling Committee, engaged a consulting firm to develop an open source simulation model of the processes of loss emergence and settlement, commonly known as loss development, that underlie the loss "triangles" and other statistics used to estimate unpaid claims. It has created a tool which is programmed in R and VB.NET that researchers could use to test loss reserving methods and models. The LSMWP will present the new model and the draft of its working party paper at the September Casualty Loss Reserve Seminar. The new open source model and paper will be uploaded to the CAS web site after this seminar.