Casualty Actuarial Society

P-1
Variance Paper and ARIA Prize Paper

Wednesday, May 23, 2012: 8:00 a.m.
Acacia (Arizona Grand Resort)
“An Economic Approach to Capital Allocation” (ARIA Prize); By George Zanjani; (Journal of Risk and Insurance 77:3, pp. 523-599)

This paper starts with primitive assumptions on preferences and risk. It then derives prices consistent with a social optimum within an insurance company and the consumer-level capital allocation implied therein. The allocation “adds up” to the total capital of the firm (a result echoing findings in the congestion pricing literature—where optimal tolls exactly cover the rental cost of the highway). The allocation follows each consumer's share of recoveries in states of insurer default, weighted by the severity of the default in terms of welfare impact. However, the article argues that an economic approach technically restricts only the capital allocated to marginal units of coverage: inframarginal units could in principle receive different allocations.

“Robustifying Reserving”; By Dumaria R. Tampubolon and Gary G. Venter; (Variance 4:2, 2010, pp. 136-154, http://goo.gl/90e0o)

Robust statitical procedures have a growing body of literature and have been applied to loss severity fitting in actuarial applications. An introduction of robust methods for loss reserving is presented in this paper. In particular, following Tampubolon (2008), reserving models for a development triangle are compared based on the sensitivity of the reserve estimates to changes in individual data points. This measure of sensitivity is then related to the generalized degrees of freedom used by the model at each point.

Panelists:
George Zanjani, Georgia State University
Dumaria R. Tampubolon, Lecturer, Bandung Institute of Technology
Gary Venter, Head of Capital Modeling, Chartis Insurance
Handouts
  • Zanjani 2012 CAS Final.pdf (208.4 kB)
  • Presentation - Dumaria.pdf (2.0 MB)
  • p3 robust gary.pdf (462.7 kB)
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