The Insurance-Risk Landscape: An Eclectic Survey by Michael Powers

“The Insurance-Risk Landscape: An Eclectic Survey” is a Masterclass video series written and narrated by Professor Michael R. Powers of Tsinghua University. Through a collection of eight engaging episodes, Professor Powers navigates the metaphorical landscape formed by the many manifestations of insurance risk — from natural and human-made perils to insurance company insolvency. Along the way, he stops to explore some of the most intriguing twists and turns in the landscape, with an ability to make the complex simple, and the simple profound. The eclectic choice of topics includes:

• the origins of insurance, with relevant insights for today’s markets;
• the roles of randomness, complexity, and uncertainty in generating losses;
• rationales for the most commonly used frequency and severity distributions;
• the interplay between hedging and diversification in risk finance;
• explanations (and common misconceptions) of insurability and underwriting criteria;
• the meaning and implications of heavy-tailed losses;
• the nature of the property-liability underwriting “cycle”;
• the opposing effects of advancing technologies on insurance markets

1. The Many Meanings of Risk  (10:31)
2. Insurance and Human Society (15:04)
3. The Nature and Origin of Insurance Losses  (23:17)
4. Bayesian Methods in Insurance  (16:16)
5. Modelling Insurance Losses – Distributions and Parameters  (19:27)
6. Modelling Insurance Losses – Distributions Versatility  (19:04)
7. Financing Insurance Losses  (15:14)
8. Heavy Tails – Underwriting and Solvency  (16:35)
9. Heavy Tails – Expected Utility and Risk Measures  (24:12)
10. Winds and Waves of the Future  (18:07)

About the Lecturer:

Michael R. Powers is Professor of Finance at Tsinghua University’s School of Economics and Management. He also holds a joint appointment as Professor of Economics and Business at Tsinghua’s Schwarzman College. From 2012 to 2015, he served as chair of Tsinghua’s finance department — a unique assignment for a foreign academic in China.

Model Risk Management – The Quest for a Unifying Approach by Andrew Smith

Modern financial businesses rely on thousands of models to support decision-making from pricing and reserving through risk and capital to management bonuses and shareholder decisions. These models sometimes fail. Forecasts prove to be inaccurate, or decisions supported by models may turn out to be unwise.

What can we do about this? We cannot eliminate the possibility that the future turns out differently to a model prediction. However, we can ensure that assurance we give on models is both truthful and statistically meaningful. We can reverse stress-test models by feeding them awkward simulated data until they break down. We can choose between harsh validation tests that reveal model weaknesses, or we can apply powerless validation methods where a green light is a foregone conclusion. We can foster a culture where people who become aware of model shortcomings are heard rather than silenced.

This 8-part ASTIN Masterclass uses a series of examples to highlight quantitative approaches to model risk management, using examples related to underwriting risk, stochastic reserving and the modelling of asset price changes. Andrew offers tips for actuaries pressured into expressing undeserved confidence in risky models, together with tips better to support decision making in the context of uncertainty.

ASTIN Members can access each episode by clicking the links below. Please login to your website account. 

The first two videos are accessible to all. If you are not an ASTIN Member, please consider joining to gain access to this and future Masterclasses!

Topics:

• Introduction: Uses of Models and Where Models Go Wrong (16 mins)


• How to Control Model Risk (13 mins)


• Application: Underwriting Risk Models (28 mins)


• Application: Reserving Risk (24 mins)


• Ersatz Model Tests (23 mins)


• Forecasting Financial Markets (40 mins)


• Professionalism Issues Related to Model Uncertainty (17 mins)


• Conclusion (12 mins)

About the Lecturer:

Andrew Smith is an assistant professor in the School of Mathematics and Statistics at University College Dublin and an Honorary Fellow of the Institute of Actuaries. Before he moved to Ireland in 2017, he gained 30 years of insurance experience, specialising in stochastic modelling, including fifteen years as a partner in a major consulting firm.