Current CAS 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 Buckhead Atlanta, GA Monday, October 10, 2005

Agenda CAS Centennial Goal CAS Centennial Goal ERM Initiatives ERM Initiatives Research Working Parties Research Working Parties Other Topics Other Topics Task Force on Actuarial Credibility Task Force on Actuarial Credibility Task Force on Publications Task Force on Publications Basic Education Initiatives Basic Education Initiatives Continuing Education Continuing Education Image of the Actuary Campaign Image of the Actuary Campaign Your Input Your Input

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

Implementing the Centennial Goal Centennial Goal Implementation Task Force Centennial Goal Implementation Task Force Subcommittee of Long Range Planning Committee Subcommittee of Long Range Planning Committee Working with Vice Presidents and Committee Chairs in setting goals. Working with Vice Presidents and Committee Chairs in setting goals. How does my committee and its goals support the Centennial Goal? How does my committee and its goals support the Centennial Goal? SAM Goals SAM Goals Significant, Attainable, Measurable Significant, Attainable, Measurable Interim milestones to help gauge progress towards the Centennial Goal. Interim milestones to help gauge progress towards the Centennial Goal.

ERM Initiatives During its March 2005 meeting, the CAS Board took actions to help the actuarial profession benefit from new opportunities in Enterprise Risk Management (ERM) During its March 2005 meeting, the CAS Board took actions to help the actuarial profession benefit from new opportunities in Enterprise Risk Management (ERM) Approved Joint CAS/SOA Risk Management Section. Approved Joint CAS/SOA Risk Management Section. Launched partnership with Enterprise Risk Management Institute International, Ltd. (ERMII). Launched partnership with Enterprise Risk Management Institute International, Ltd. (ERMII). Created new Vice President-Risk Integration position to oversee ERM-related activities. Created new Vice President-Risk Integration position to oversee ERM-related activities.

Risk Management Section Similar to the existing CAS special interest sections CARe and AIR. Similar to the existing CAS special interest sections CARe and AIR. Both CAS and SOA members are eligible to serve on the Council that guides the activities of the Section. Both CAS and SOA members are eligible to serve on the Council that guides the activities of the Section. Members are encouraged to join the Section. Annual dues are only $20. Members are encouraged to join the Section. Annual dues are only $20. Look for the check box on the CAS dues notice in October. Look for the check box on the CAS dues notice in October.

Other ERM Initiatives ERMII is a private, not-for-profit, independent educational and research organization led by CAS Fellow Shaun Wang. ERMII is a private, not-for-profit, independent educational and research organization led by CAS Fellow Shaun Wang. ERMII is co-sponsored by an international group of universities and professional organizations including Georgia State University, University of New South Wales, University of Illinois, Wuhan University (China), and the CAS. ERMII is co-sponsored by an international group of universities and professional organizations including Georgia State University, University of New South Wales, University of Illinois, Wuhan University (China), and the CAS. VP-Risk Integration to oversee and coordinate ERM-related activities. VP-Risk Integration to oversee and coordinate ERM-related activities.

CAS Strategies Take the Lead – More vigorous effort Take the Lead – More vigorous effort Expansion of Research Expansion of Research Publications Publications Public Relations Public Relations A Though (Idea)- A Though (Idea)- Develop Global Journal of ERM Develop Global Journal of ERM Joint Sponsorship with ERMII Joint Sponsorship with ERMII Outreach to all Professions Outreach to all Professions Research Topics, such as Operational Risk Research Topics, such as Operational Risk

CAS ERM Definition “The discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risk from all sources for the purpose of increasing the organization’s short- and long-term value to its stakeholders” “The discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risk from all sources for the purpose of increasing the organization’s short- and long-term value to its stakeholders” Key elements: Key elements: Dual nature of risk Dual nature of risk Value creation Value creation

Risk Type Strategic Strategic Operational Operational Financial Financial Hazard Hazard Strategic Strategic Operational Operational Financial Financial Hazard Hazard Risk Management Process Step Establish context Establish context Identify risks Identify risks Analyze/quantify risks Analyze/quantify risks Integrate risks Integrate risks Assess/prioritize risks Assess/prioritize risks Treat/exploit risks Treat/exploit risks Monitor and review Monitor and review Establish context Establish context Identify risks Identify risks Analyze/quantify risks Analyze/quantify risks Integrate risks Integrate risks Assess/prioritize risks Assess/prioritize risks Treat/exploit risks Treat/exploit risks Monitor and review Monitor and review CAS ERM Conceptual Framework: Two Dimensions

Actuarial Techniques in the Broader ERM World Credit Risk Credit Risk One of the established methods is called the “actuarial method” One of the established methods is called the “actuarial method” # of borrowers by rating category = exposure # of borrowers by rating category = exposure Default rate by rating category = frequency Default rate by rating category = frequency Defaults = claim count Defaults = claim count Loss given default = severity Loss given default = severity Operational Risk Basically an internal actuarial study of loss-generating events State-of-the-art is basically re-created “Basics of Actuarial Analysis” Dr. Ali Samad-Khan’s presentation from the 2004 ERM Symposium handouts/samad-khan.pdf handouts/samad-khan.pdf

Modeling Workshop Education in risk integration techniques is consistent with Centennial Goal. Education in risk integration techniques is consistent with Centennial Goal. DFA added to Syllabus in DFA added to Syllabus in DFA taken off Exam 8 in 2003 due to inability to test in a paper-and-pencil environment. DFA taken off Exam 8 in 2003 due to inability to test in a paper-and-pencil environment. Modeling Workshop Task Force established. Modeling Workshop Task Force established. Piloting a hands-on workshop experience, with the final pilot conducted with new Fellows in May Piloting a hands-on workshop experience, with the final pilot conducted with new Fellows in May Consider adding this as a future FCAS requirement and/or continuing education opportunity. Consider adding this as a future FCAS requirement and/or continuing education opportunity.

FCAS Education Task force established in late 2004 to recommend “Learning Objectives” for what it means to be an FCAS in the year Task force established in late 2004 to recommend “Learning Objectives” for what it means to be an FCAS in the year Considerations Considerations Perhaps reducing total number of exams by one (i.e., 8 exams plus VEE). Perhaps reducing total number of exams by one (i.e., 8 exams plus VEE). include a mandatory workshop (e.g., DFA Modeling Workshop). include a mandatory workshop (e.g., DFA Modeling Workshop). Final Recommendations due to CAS Board in November Final Recommendations due to CAS Board in November 2005.

Research Working Parties Correlations and Dependencies Among All Risk Sources Correlations and Dependencies Among All Risk Sources Executive-Level Decision-Making Using Dynamic Risk Modeling Executive-Level Decision-Making Using Dynamic Risk Modeling Elicitation and Elucidation of Risk Preferences Elicitation and Elucidation of Risk Preferences Quantifying Variability in Reserves Estimates Quantifying Variability in Reserves Estimates

Research Working Parties Dynamic Risk Modeling Handbook Dynamic Risk Modeling Handbook Public-Access DFA Model Public-Access DFA Model Bornhuetter-Ferguson - Initial Expected Losses Bornhuetter-Ferguson - Initial Expected Losses Tail Factors Tail Factors Risk Transfer Testing Risk Transfer Testing

Bottom Line 1. Actuaries are the top candidates for ERM leadership in insurance and pensions 2. We need to stop thinking protectionist and embrace expansion fearlessly and confidently 3. Let’s lead, not follow 4. Actuaries must reframe traditional roles as part of the larger ERM context

Other Topics of Interest Your Inputs are Welcome

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

Task Force on Actuarial Credibility 1. Enhance the transparency of the actuary’s conclusions by clearly identifying differences between management’s “best estimate” and the actuary’s “best estimate.” 2. Enhance the public’s understanding of actuarial estimates. 3. Improve the transparency of disclosures by requiring that the actuarial report contain an exhibit that summarizes changes in the actuary’s estimates from one period to the next.

Task Force on Actuarial Credibility 4. Enhance the quality of corporate governance by educating audit committees or board of directors or both on the roles and responsibilities of the appointed actuary. 5. Enhance the self-governance of the profession by requiring the appointed actuary to provide an explanatory document with the ABCD whenever the change in the actuary’s reserve estimates over a defined period exceeds certain predetermined thresholds.. 6. Elevate the unique role of the appointed actuary within the statutory financial reporting environment by incorporating an Actuarial Statement within the Jurat Page of each company’s Annual Statement.

Task Force on Actuarial Credibility Task Force Report presented to the CAS Board in May Task Force Report presented to the CAS Board in May Board accepted the Report and directed the Executive Council to consider the recommendations and implement them as appropriate. Board accepted the Report and directed the Executive Council to consider the recommendations and implement them as appropriate. Follow-up report due to Board in November Follow-up report due to Board in November 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 Publications 1. Remove papers from PCAS. Keep CAS- specific content and add Yearbook content. 2. Create a yearly Membership Directory publication as a separate soft-cover publication. 3. Create a new journal called the Journal of Casualty Actuarial Science where refereed papers will be published. 4. Encourage non-CAS members to publish in the Journal; actively solicit articles from around the world

Task Force on Publications 5. Continue to publish the Forum in hardcopy if it is economically feasible and subscribing members pay the full cost of producing and distributing it. 6. Change the name of the Forum to The Forum: A Clearinghouse for Expressing Ideas and Stimulating Discussion. 7. Create a process to publish monographs (e.g., collections of study notes, call papers of particularly high quality and focused on one topic). 8. Produce an international monograph in 2007 to commemorate the ASTIN Colloquium.

Basic Education Starting Spring 2005 Prerequisites: Linear Algebra and Calculus Prerequisites: Linear Algebra and Calculus Validation by Educational Experience: Economics, Finance, Applied Stats Validation by Educational Experience: Economics, Finance, Applied Stats Exam 1: Probability with Calculus (3 hours) Exam 1: Probability with Calculus (3 hours) Exam 2: Interest (2 hours) Exam 2: Interest (2 hours) Exam 3: Actuarial Models & Statistics (4 hours) Exam 3: Actuarial Models & Statistics (4 hours) Exam 4: Actuarial Modeling (4 hours) Exam 4: Actuarial Modeling (4 hours)

VEE Options 1. Approved university course (grade of B- or better) 2. Approved exams (e.g., AP exams for Micro and Macroeconomics, CFA exams, CAS transitional exams). 3. Other approved experiences (courses/seminars designed specifically for VEE credit.)

Computer Based Testing Candidates take exam at a standardized testing center. Candidates take exam at a standardized testing center. Can schedule exam any time during a specified period (e.g., three days). Can schedule exam any time during a specified period (e.g., three days). Software tutorial provided online and before exam begins. Software tutorial provided online and before exam begins. User friendly software with easy navigation. User friendly software with easy navigation. Potential for immediate grading. Potential for immediate grading.

CBT Implementation for Exam 1 May standard paper and pencil exam. May standard paper and pencil exam. September CBT (paper and pencil backup for areas without CBT centers). September CBT (paper and pencil backup for areas without CBT centers). November no exam. November no exam to 6 CBT administrations to 6 CBT administrations. Immediate release of grades beginning some time in Immediate release of grades beginning some time in Rollout to other exams in future years. Rollout to other exams in future years.

Code of Professional Conduct Beginning in 2006, candidates taking CAS Exams 3, and 5-9 will be required to agree to abide by the terms and conditions of the CAS Code of Professional Conduct. Beginning in 2006, candidates taking CAS Exams 3, and 5-9 will be required to agree to abide by the terms and conditions of the CAS Code of Professional Conduct. Recognizes that candidates who have not yet achieved Associateship perform responsible actuarial work and that this work should be done within the framework of the Code. Recognizes that candidates who have not yet achieved Associateship perform responsible actuarial work and that this work should be done within the framework of the Code.

Research Working Parties Research “task forces” Research “task forces” Process should result in quality work products. Process should result in quality work products. Brings together the research energy of individual researchers. Brings together the research energy of individual researchers. Proven to be effective for GIRO, the general insurance research organization of the Faculty and Institute of Actuaries (UK). Proven to be effective for GIRO, the general insurance research organization of the Faculty and Institute of Actuaries (UK).

Continuing Education AAA Exposure Draft recommends that the Qualification Standards apply to all “statements of actuarial opinion” defined as follows: … an opinion expressed by an actuary based upon actuarial considerations, and intended by the actuary to be relied upon by the outside person or organization to whom the opinion is addressed. The phrase “outside” person or organization refers to persons or organizations other than the actuary’s direct employer. A statement of actuarial opinion, although usually conveyed in writing, may also be conveyed orally.

Calendar of Events Seminar for the Appointed Actuary (with the CIA), September 22-23, Montréal Seminar for the Appointed Actuary (with the CIA), September 22-23, Montréal CAS Annual Meeting November 13-16, Baltimore, MD CAS Annual Meeting November 13-16, Baltimore, MD Online Course on Financial Risk Management November 4-20, CAS Web Site Online Course on Financial Risk Management November 4-20, CAS Web Site 2006 Seminar on Ratemaking March 13-14, Salt Lake City 2006 Seminar on Ratemaking March 13-14, Salt Lake City

Image of the Actuary Campaign Profession-wide campaign. Image Advisory Group, made up of members from each of the North American actuarial organizations, oversees campaign. Campaign kick-off CD ROM sent to all actuaries. for more information.

I welcome your input regarding... CAS Centennial Goal CAS Centennial Goal ERM Initiatives ERM Initiatives Task Force on Actuarial Credibility Task Force on Actuarial Credibility Basic Education Initiatives Basic Education Initiatives Research and Publications Research and Publications Continuing Education Continuing Education International Issues International Issues What’s On Your Mind? What’s On Your Mind? Questions? Questions?

Thank You! Robert F. Wolf, FCAS, MAAA Principal, Mercer Oliver Wyman 10 South Wacker Drive, Suite 1700 Chicago, IL Fax Mobile