Harry Panjer is Professor of actuarial science at the University of Waterloo. He has previously taught actuarial science at the Universities of Western Ontario and Texas at Austin. He is the author of many papers in actuarial journals dealing with modelling insurance risk, co-author of the books Insurance Risk Models, Loss Models: from Data to Decisions and Financial Economics: with Applications to Investments, Insurance and Pensions. He holds a PhD in Mathematics and is a Fellow of the Society of Actuaries (USA) and the Canadian Institute of Actuaries (CIA) and an Honorary Fellow of the Institute of Actuaries (UK).

Harry Panjer will serve as moderator of this session.

Shaun S. Wang, Ph.D., FCAS, ASA, MAAA

The framework:
1. Starting with an equilibrium-pricing framework, Dr. Wang will present a universal risk-measure that not only extends CAPM and Black-Scholes formula, but also goes beyond the coherence of Tail-VAR.
2. He will then introduce a two-factor model that further incorporates adjustment for parameter uncertainty, and show how well it fits empirical CAT-bond data & corporate credit yield spreads.
3. He will discuss the insufficiency of normal copula in modelling extreme correlations, and advocate for using empirical copula.
4. He will present a new coherent capital allocation method that is consistent with the equilibrium-pricing framework.
5. He will use the two-factor model to quantify shareholder "value creation" and portfolio optimisation through enterprise risk management.

Practical issues to be addressed along the way:

What risks to measure?

Industry perspective versus company's own portfolio

The need for a good performance measure

Diversification benefit versus concentration of expertise

"Long-term relationship" versus "insurance as a commodity"

Income versus balance-sheet concerns

Knowledge-based risk-management system

Stuart F. Wason, FSA, FCIA, MAAA

Risk Measurement in Insurers

The framework:
1. Risk is inherent in all areas of insurer operations. Mr. Wason will review the actuarial control cycle which underlies the operations of an insurer.
2. He will then outline the major types of risk to which insurers are subject as well reviewing current systems for risk classification.
3. He will provide an overview of types of risk models in use by insurers.
4. He will discuss the key components of risk; volatility, uncertainty, and extreme event risk.
5. He will highlight the major forms of risk management in insurers.
6. He will outline the current challenges inherent in insurer risk measurement.
7. He will conclude with the implications for risk measurement in insurers.

Practical issues to be addressed along the way:

Need for broader understanding of all insurer risks

Variety of risk classification schemes in use globally

Importance of capital assessment and allocation

Impact of global trends on both financial reporting and risk based capital requirement