Risk Management
Task Force

Economic Capital Calculation and Allocation (ECCA) Minutes

 

Economic Capital Calculation and Allocation (ECCA) Subgroup
May 2, 2003
9:30 a.m. Central Time

Participants:
Participants: Hubert Mueller (Leader), Jenny Bowen, Bill Chang, Kevin Dickson, Nathan Greenlee, Gary Hatfield, David Ingram, Kamran Quavi, Brett Roush, Jose Siberon, Julie Young (SOA), Ali Zaker

Purpose:
A discussion of the status of our work on the Specialty Guide.

I. Specialty Guide

  1. General Comments
    • Point of terminology-Let's not use "risk based capital" to refer to NAIC or rating agency capital
    • We should use: "economic capital" and "regulatory capital"
    • Terms that we agreed to use: Economic Capital - Regulatory Capital - Rating Agency Capital
      ACTION ITEM: Jenny will do an initial draft clarifying this point

    • On page 19 we need to move this up to the front of the section
    • We can expand on paragraph on page 7
    • Section 6 and 7 - e-mail about Bowles symposium - presentation by Gary Vetner. That overlaps with what Sections 6 and 7 are about. This may be a good start.
    • Kevin Reimer has volunteered to work wherever he is needed (see below).

  2. Introductory Section
    • Add a comment on the connection with ERM (Hubert will provide a draft)

     

  3. How do we define Economic Capital? (Hubert Mueller, Jenny Bowen)
    • Jenny's clarification on "economic capital" vs. "rating agency capital" will go in here

     

  4. Use of Economic Capital (Dave Ingram, Brett Roush) - Section 4
    —The authors are re-drafting section 1. It should be ready within a week.
    —Table 4.1 - Add a fifth column, change the headers, move second line to be the first line
    • Table 4.2 - the numbers with be revised. For "surplus capital" add N/A
    • Dave will provide updated language for the introductory part of Section 4

     

  5. Tie-in of EC to Regulatory / Rating Agency Capital - Section 5
    • Move "Allocation of Required Capital" to be its own section - placed after Section 6 (new Section 7)
    • Pages 19-22 will be moved out into its own section (Hubert will do initial editing and e-mail it out to everyone.)
      ACTION ITEMS: Ali will re-work Section 7 and provide a draft to the group for review

  6. Current Approaches to calculating EC (Terry Owens, Ali Zaker, Kamran Quavi) - Section 6
    Add: "In this section we will describe a theoretical method as well as practical methods."
    Start with summarizing Venter's paper (will also be summarized in Literature Review).
    Add in the materials provided by Ali Zaker last week (Hubert will include into the Guide)
    Divide Section 6 into three parts - What difficulties have they had? What have they done in response to those difficulties? The three sections can be: 1) theoretical, 2) describe methods that are used, 3) discuss practical considerations and constraints, and ways that companies have overcome those.
    ACTION ITEM: Dave, Nathan, Ali, Kevin Reimer and Kamran will be in a group to rework this section. Kamran has the lead. Hubert will review.
    They will do a first pass. Everyone will write a paragraph about theoretical and practical methods, and send to Kamran by Friday, May 9. Kamran will redistribute to all by May 12, and we will discuss it in a conference call May 14.

II. SOA Meeting

  • A panel discussion will be held on EC. Hubert is the moderator.
  • A buzz group session on all subgroups will also take place. Jenny will facilitate for our group.
  • We had a discussion about this group getting together at the upcoming Washington DC Spring Meeting.
    • A time was set for 2:30 - 4:00 p.m. on May 28. This meeting will be in the hotel.

ACTION ITEM: Dave will check with Amy Wojcik of the SOA about a meeting room (Done - see below).

III. Next Calls/Meeting

  1. May 14 at 1:00 PM EDT: Conference call of subgroup members who are working on completing Sections 6 and 7 of the Guide. This call is expected to last for one hour.
    Dial-in details are as follows: 1-877-213-9444, participant code: 443 630.

  2. May 27 at 9:30 a.m. Central Time: next subgroup call. This call is expected to last for 1 ½ hours. Julie to provide dial-in details.

  3. May 28 from 2:30 - 4:00 p.m.: face-to-face meeting of subgroup members who will be attending the Washington, DC Spring Meeting. The meeting will be held in the "Grant Room" at the Washington Hilton & Towers.

IV. Next Steps

A revised version of the guide will be discussed on the next call.
We would like to have something ready to hand out at the Risk Management Buzz Group Session at the May 29-30 SOA meeting.

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