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 www.casact.org/research/drm/.  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.