1. American Academy of Actuaries Sponsored Session — Climate Change: Models and Data
The More Things Change: NOAA Weather Station and ERA5 Reanalysis Climate Data Compared
Speakers: Steve Jackson and Peter Ott
Assessing changes in climate requires a careful weighing of several options which exist for sources of data. As part of its contribution to the revision of the Actuaries Climate Index, we are examining several elements from the ERA5 reanalysis database produced by the European Centre for Midrange Weather Forecasts, comparing them to observational sources (the Global Historical Climate Network, and the Permanent Service for Mean Sea Level). In this first paper in a series of assessments we examine temperature and precipitation, and evaluate three dimensions: 1) the coverage and completeness of that coverage; 2) the consistency of results from the two sources; and 3) the performance of the two sources in special circumstances (such as Hurricane Katrina). In general, we find ERA5 to be far superior in completeness and coverage, roughly consistent with observational data, and equal or superior to the observational data in special circumstances. In the latter two findings we also note an important caveat: while ERA5 allows us to perform much more granular analysis than observational records, there is some limit to the granularity which produces results consistent with the observational. The implications of these results for a use such as that of the Actuaries Climate Index are then discussed.
Climate change signal in Atlantic tropical cyclones today and near future
Speakers: Chia-Ying Lee, Adam H. Sobel, Michael K. Tippett, Suzana J. Camargo, Marc Wuest, Michael Wehner, andHiroyuki Murakami
We use a set of computer model simulations to study recent trends in Atlantic hurricanes. We looked at three aspects of these storms: the number of tropical cyclones each year, which has fluctuated up and down over time (but generally increased over the last several decades); the strength of their winds, which has been increasing; and the speed at which they move, which has been decreasing. These trends could be caused either by human-induced global warming or by natural variability; determining which cause is more important to overall hurricane risk requires us to understand how the number of tropical cyclones per year responds to warming. In our simulations, this number can either increase or decrease with warming, depending on which of two nearly identical versions of our model we use to simulate the storms. This uncertainty prevents us from reaching definitive conclusions about either present or future hurricane risk. Nonetheless, our analysis suggests that the risk of Atlantic hurricanes is more likely increasing than decreasing, and we argue that from a broader point of view, this is effectively equivalent to saying the risk is increasing.
Risk Modeling of Hail Damage Insurance Claims Using a Factor Copula Regression for Replicated Spatial Data
Speakers: Lisa Gao and Peng Shi
The localized nature of hailstorms leads to a concentration of correlated risks that can substantially amplify aggregate storm-level losses. We propose a spatial factor copula to characterize the dependence between hail property damage claims arising from a common storm when analyzing its financial impact. The factor copula captures the spatial dependence among properties that decays with distance, as well as the aspatial dependence induced by the common shock of experiencing the same storm. The framework allows insurers to flexibly incorporate the observed heterogeneity in marginal models of skewed, heavy-tailed, and zero-inflated insurance losses, while retaining the model interpretation in decomposing latent sources of dependence. We present a likelihood-based estimation to address the computational challenges from the discreteness in the outcome and the factor copula in high dimensions. Using replicated spatial hail damage insurance claims data from a U.S. insurer, we demonstrate the effect of dependence on reinsurance and retention decisions.
2. Casualty Actuarial Society Invited Sessions
Unlocking the Value of CAS Research
Speaker: Peng Shi, ACAS, Ph.D. and Brian Fannin, ACAS, CSPA
In today’s actuarial profession, practical research plays a pivotal role in driving progress and innovation. The session aims to educate participants about the fundamental role of CAS research initiatives across its many publications, with special attention paid to contributions to Variance, CAS’s peer-reviewed journal, and research in the ratemaking specialty. The session will also highlight opportunities for researchers and institutions to contribute to the CAS’s research catalogue.
3. Education Updates from CIA, CAS, and SOA
New Options and opportunities in the CIA education system
Speaker: Alicia Rollo, CHRL, Director Education and International Affairs
Learn how the Canadian Institute of Actuaries is transforming actuarial education and the qualification process in Canada to provide innovative, flexible, and accessible options for all candidates. Through an expansion of our 10+ year university accreditation program across 11 accredited universities, and a new suite of modern educational products leading to qualification as ACIA or FCIA, the future of actuarial qualification in Canada is bright!
CAS Resources to Help Prepare Your Students to Be the Next Generation of Property/Casualty Actuaries
Speakers: Ken Williams, FCAS, MAAA and Alisa Walch, M.A., FCAS
Looking to learn about the exciting new updates and resources being offered by the Casualty Actuarial Society? Attend this session that will cover the recent changes to the CAS credentialing pathway, as well as resources offered to students and academics to gain more exposure to the property and casualty insurance industry. Additional highlights include student opportunities like the CAS Student Central Summer Program and the various off-the-shelf resources for academics such as CAS case studies and competition toolkits. CAS staff and volunteers who work first-hand on these various initiatives will answer your questions and hear your feedback throughout the session!
SOA Education Updates
Speaker: Stuart Klugman, FSA, CERA
This annual update will provide a review of SOA education and examination over the past year and provide a preview of upcoming changes. There will be time for attendees to ask questions.
4. Milliman Special Session: UNDP-Milliman Global Actuarial Initiative (GAIN)
Speaker: Josh Collins, FSA, MAAA, Senior Actuarial Manager, Milliman
Program background: In September 2022, the United Nations Development Programme (UNDP)’s Insurance and Risk Financing Facility (IRFF) and Milliman launched the UNDP-Milliman Global Actuarial Initiative (GAIN), which aim to build actuarial profession and expertise in developing countries, helping predict and prepare for risks in these uncertain times.
What is GAIN’s mission? UNDP has identified actuarial capacity and expertise – assessing risk in insurance and finance with mathematical and statistical methods – as a necessary input for the achievement of the Sustainable Development Goals (SDGs). Working in partnership with the UNDP, Milliman will contribute to the growth of actuarial profession and expertise so that governments and the insurance industry can better manage the increasing risks faced by the people and enterprises in developing nations. The scope of this initiative includes:
- Building actuarial capacity and expertise of local actuarial professionals.
- Enhancing data availability through regulators and the insurance industry.
- Supporting countries in adapting with more resilient risk management as part of the climate change impact.
- Supporting advocacy to governments, insurers, and others in achieving programme goals.
What are our goals? Through our engagement in many countries through GAIN we have consistently recognized the importance of actuarial science education through local universities as an important pillar of the development of local actuarial talent. The local university is an important step as it provides a more cost-effective approach to education relative to international universities or international actuarial exams, while also retaining the actuarial talent in-country and incentivizing graduates to contribute to the growth of their local profession.
In order to build actuarial capacity, it is important to strengthen the universities with sustainable structures are established to ensure quality actuarial graduates are produced. GAIN has identified several goals to improve actuarial science education in the countries we are engaged in, which are:
- Support the development of faculty members and provide access to training materials
- Provide access to affordable educational tools and resources to faculty members and students
- Increase awareness of the actuarial profession amongst prospective university students
- Strengthen the linkage between industry and academia through better access to research opportunities
Join an alliance with the UNDP-Milliman partnership: As a professional firm we recognize our skillsets and expertise at Milliman do not reflect all the academic needs of higher education institutions. Therefore, we invite professionals and academics with the relevant expertise to work with us to achieve our goals. Supporting GAIN allows organizations and individuals to gain exposure through their commitment to the actuarial profession, share your knowledge and learn from peers around the world, and associate themselves with expertise and leadership in advancing the SDGs.
5. Session in Memory of Dr. Ken Seng Tan
Chairs: Prof. Phelim Boyle and Prof. Chengguo Weng, University of Waterloo
This session commemorates the contributions of Ken Seng Tan to actuarial science. Ken Seng was a brilliant researcher, an outstanding educator, and an avid champion of actuarial science. He spent most of his career at the University of Waterloo as a professor of actuarial science. In 2019 he joined Nanyang Technical University in Singapore where he held the President’s Chair in Actuarial Risk Management. In this session, three of his students will showcase their research contributions.
Individual Loss Reserving Using Marked Point Process
Speaker: Shimeng Huang, University of Wisconsin-Madison
Accurate prediction of an insurer’s outstanding liabilities is crucial for maintaining the financial health of the insurance sector. We aim to develop a statistical model for insurers to dynamically forecast unpaid losses by leveraging the granular transaction data on individual claims. The liability cash flow from a single insurance claim is determined by an event process that describes the recurrences of payments, a payment process that generates a sequence of payment amounts, and a settlement process that terminates both the event and payment processes. More importantly, the three components are dependent on one another, which enables the dynamic prediction of an insurer’s outstanding liability. We introduce a copula-based point process framework to model the recurrent events of payment transactions from an insurance claim, where the longitudinal payment amounts and the time-to-settlement outcome are formulated as the marks and the terminal event of the counting process, respectively. The dependencies among the three components are characterized using the method of pair copula constructions. We further develop a stage-wise strategy for parameter estimation and illustrate its desirable properties with numerical experiments.
In the application, we consider a portfolio of property insurance claims for building and contents coverage obtained from a commercial property insurance provider, where we find interesting dependence patterns among the three components. The superior performance of dynamic prediction strategy implied by the proposed joint model enhances the insurer’s decision making in claims reserving and risk financing operations.
Borrowing Information across Space and Time: Pricing Flood Risk with Physics-Based Hierarchical Machine Learning Models
Speaker: Yanbin Xu, Nanyang Technological University
This paper proposes a physics-based hierarchical deep learning framework for flood risk modeling that integrates high-resolution meteorological and hydraulic data. The framework employs a hierarchical deep learning model structure based on geographical locations. Using the Mississippi River as a laboratory, we demonstrate that the proposed framework outperforms conventional deep learning model benchmarks. We also apply the model-generated risk factors to the national flood insurance program (NFIP) policy and claim dataset to test the risk pricing performance. The risk factor generated by the proposed model not only improves the net premium by better tracking underlying risks, but also lowers the solvency capital requirement. Our global optimization approach allows the model to leverage spatial and temporal information, while the physics-based hierarchical structure improves the interpretability of the deep learning models and addresses the challenges posed by anthropogenic effects in flood risk prediction.
Navigating Uncertainty in ESG Investing
Speaker: Jiayue Zhang, University of Waterloo
The focus of this thesis is to investigate the application of sustainable and green investments in the finance and insurance industries, specifically addressing their relevance to addressing climate change and resiliency. To develop a portfolio optimized for both financial returns and sustainability factors, ESG scores are integrated into the reward function of a conventional Reinforcement Learning model. This approach enables a more robust analysis of the impact of various ESG ratings published by major rating agencies on the coherence of investment strategies. The model addresses the widespread confusion arising from the high heterogeneity in published ESG ratings by treating it as a source of ambiguity, and proposes four ESG ensemble strategies catering to investors with different risk and (smooth) ambiguity preference profiles. Additionally, a Double-Mean-Variance model is constructed to combine financial returns and ESG score objectives, define three investor types based on their ambiguity preferences, and develop novel ESG-modified Capital Asset Pricing Models to evaluate the resulting optimized portfolio performance. The Fama-French three-factor model is also extended to examine the individual contributions of the three ESG pillars.
6. Is the Workplace Leading or Following Society in Diversity, Equity, and Inclusion?
- Claudia Schabel
- President and CEO
- Schabel Solutions Inc.
- Katherine Saunders
- Vice President, Talent Acquisition and HRBP
- American Equity Investment Life Company
- Jennifer Bryant
- Human Pivot Consulting
- Beth Nigut
- Executive Vice President
- EMC Insurance Companies
Diversity, equity, and inclusion is a critical component of both a just society and workplace. This session brings together thought leaders and practitioners with experience in the insurance industry to share their goals, successes, challenges, and measurable outcomes. Learn how they identified the appropriate next steps for their organizations, how they determined whether success is defined as a milestone or a finish line, what expected and unforeseen challenges occurred and how they pivoted to improve, and if improvement can be measured. Panelists have experience in both formulating strategies and executing plans.