Credit Risk Management (CRM) Minutes

Credit Risk Management (CRM) Subgroup
December 10, 2003
1:00 p.m. Central Time

Participants:
David Ingram (Leader), Hank Hansen, Martin Le Roux, David Li, David Ruhm, Shawn Stackhouse, John Stark, Julie Young (SOA)

We have not settled on a mission for the group yet, so we will talk through possibilities for the group again.

Shawn Stackhouse is from Mercer Oliver Wyman in Toronto. He joined this group last month. He does basic work with credit risk modeling. He’d like to try to develop his skills, and wants to contribute to development of modeling skills.

David Li is from Citigroup and does credit modeling.

John Stark is from Anthem.

Hank Hansen works at PMI Mortgage Insurance Company. They insure credit risk on individual mortgages, and mortgage transactions. Hank moved from the Life industry. When loans are bought and sold on the market, and mortgage back securities are put together, investors like to take out the credit risk, so Hank’s company gets involved in pricing for the credit risk, and insuring mortgages for credit risk protection. They do a lot of hazard model work mostly on private residential mortgages.

Martin Le Roux is from ING in Denver, CO. They are implementing KMV portfolio manager for their corporate bond portfolio and they have done work in credit swaps.

Dave Ingram is a consultant with Milliman USA. He does credit modeling for pricing, valuation and risk management purposes, and has done peer review of other people’s modeling.

The RMTF has been an open ended, bottom up group whose subgroups have been working on projects identified by the groups themselves. A number of the groups have done white papers, or specialty guides, an extensive guide was created on economic capital, and the ERM group has sponsored telephone seminars.

We have discussed having a Credit Risk seminar. Dave Ingram and David Li have been working on this, which will be co-sponsored between Milliman and Citigroup.

What kind of activities does the group want to do in order to educate us, or to determine a research project?

No one has suggested any research projects that we should undertake. We thought about offering telephone seminars and discussed this on our last call.

Different types of research that needs to be done
No ideas at this time.

Education Side – Has anyone thought of suggestions of possible speakers to approach?
There are a few types of ways that these have been done:

• A one-hour seminar where speaker talks for 45 minutes and there is a 15-minute Q&A session.
• The other format that has been used for CE programs is more formal. They offer an hour and a half program with three speakers. They have a fancier set up and they offer the ability to tap in to the program after the fact on a recorded basis through the web with a coordinated slide show. They have been charging approximately $194 for web and $120 for the recorded version only.

Possible Speakers
Martin Le Roux said that K&B people would be happy to speak. (David Yi would have some connections.)

Martin said they do have one person at their Atlanta office that came up through the banking credit risk side and is now working on the insurance side.

There is an investment seminar being planned for Boston for November next year and they are just gearing up to discuss possible topics and sessions for that meeting.

For the annual meeting next October, they are about to start the cycle of planning for that (some time in the Spring). We can turn these ideas into session descriptions for the annual meeting.

Five Topics That Have Been Brought Up

• Credit Risk software vendors
• Getting insurance company credit risk managers to talk about what they’ve been doing
• Quantitative credit risk management
• Credit Analysis of providers in groups that could be an offshoot of credit analysis of particular companies
• Actuarial roles outside of insurance companies

How can we tap into and spread information about experiences like Hank’s? You rarely see an actuary in the business that Hank is in.

David Li has a few actuaries working at his bank.

ACTION ITEM: Dave will send out a template for session descriptions.

We can turn our topics into session descriptions and shop them around.

Write Up Volunteers
Software vendors speaking about their approach to CR modeling – Martin Le Roux
Credit managers talk about recent experiences – Joel Salomon
Quantitative credit risk management, portfolio basis credit risk management – David Ruhm
Credit analysis of providers in groups – John Stark
Actuarial roles outside of insurance companies related to ERM – Dave Ingram, Hank Hanson, David Li
CDO’s – David Li

Next week we are having our initial meeting of the new risk management section council. We will try to determine what the section council needs to do which isn’t being done right now.

Actuaries are undereducated in the area of credit risk.

Should someone put together an ABC’s of credit risk reading list? Yes.

ACTION ITEM: The CIA just made an attempt at putting a list together so Martin will send the link to Dave Ingram and Dave will send it to the group.

Next Call
Our next call will take place on January 28 at 1 p.m. Central Time.

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