Reserve Variability Working Party

KickoffPhil HeckmanAon Risk ConsultantsRoger HayneMilliman USACLRS 2003

Agenda CAS Centennial Goal (CG) CAS Research Overhaul Working Party brainstorming

CAS CG The CAS will be globally recognized as a

pre-eminent resource in educating casualty actuaries and conducting research in casualty actuarial science. CAS members will be recognized as leading experts in the evaluation of hazard risk and the integration of hazard risk with strategic, financial and operational risk.

CAS CG Implications “… pre-eminent resource in …

conducting research in casualty actuarial science.”

“… leading experts in the evaluation of hazard risk and the integration of hazard risk with strategic, financial and operational risk.”

Problem Statements No keepers of the state of the

science Need for survey papers, syllabus

material Research overload via Call Papers Role/function of the PCAS unclear

Proposed Solutions De-emphasize Call Paper programs Establish Working Paper and Model

repository on the CAS Website Evaluate CAS Publications Develop a CAS Research Taxonomy Establish Research Corners and Working

Party sessions at the major seminars Institute Working Parties

Whither Call Papers? Bottom-up, fast-track research

source. Stimulate communication,

discussion and sharing. Good in concept, in practice has

been another story.

Call Papers Not a professional journal

Not peer reviewed. Inclusive editorial policy. Inconsistent review and prize

standards. Inconsistent appearance and structure

of papers. Contributes to members’ filtration

and overload problems.

Call Papers Not generating discussion

Solitary practitioners produce, present No context, follow-up, formal discussion

Not leading to systematic progress of the science No referencing standards, context No clear advancement of the science

Call Papers Working Papers CPs are the equivalent of working papers

within academia Posted on websites and discussion forums Works-in-progress, on their way to peer-

reviewed journals We can still have bottom-up idea

generation, idea sharing, and discussion by establishing a Working Paper (and Model) repository on the CAS Website

Working Paper Repository Categorized by research area Members can post and comment on

posts (mini-reviews) Items receiving a lot of activity can

be the material for the Research Corners at the major seminars

Publications Task Force Impact and notoriety of PCAS

outside the CAS is NIL Forum is used / abused

Large bodies of work published without formal peer review

Considering some radical surgery Maybe we join the NAAJ

Research Taxonomy Categorization scheme for our research Should dramatically improve searches Precursor to having effective referencing

standards Under development by the Research

Chairs, with the assistance of Erin Clougherty and Mike Boa of the CAS Office

Working Parties Essentially a collective call paper task

force Collective = group effort, single group

work product Ideas come from the members attending

major seminar Seminar has presentation of prior year’s

work, selection of next year’s topics

Working Parties Group effort forces discussion during

the production of the product Oversight by research committee Can enforce editorial standards,

referencing, ensure that current state of the science is documented, as well as context and scope of new research

Working Parties An easy to implement answer that

helps on many fronts: Solitary Group Bottom-up + Top-down Consistency in format, referencing, etc. Member involvement Natural seminar cycle supports it

Working Parties Be prepared for some differences Progress will be made Ties will be broken Oversight by R&D committees will

be “managed consensus” Stronger editorial hand

Working Parties Piloted at 2003 RCM Seminar Work product to be presented at

2004 RCM Seminar Involves two proactive research

committees (Reserves, COTOR) Also to be introduced Ratemaking

(March 2004)

Reserve Variability WP Perennial problem: solve piecewise Most techniques kill variability Not enough info in a set of triangles Need to learn to combine data from

many sources Need to think of loss development as a

stochastic process, increments not independent

What does cohort agg. dist. look like?

0.0

0.1

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1.0

0 500,000 1,000,000 1,500,000 2,000,000

Cohort Aggregate Losses Distribution will have a probability

mass for no further payments that becomes large in the tail.

Severity stays up, frequency decreases with age of cohort.

Need to consider this to fit tail Here ends my 2¢ worth.