Risk Management
Task Force

Extreme Value Models (EVM) Minutes

 

Extreme Value Models (EVM) Subgroup
April 12, 2005
9AM Central Time

Participants
Tom Edwalds (Leader), Bob Guth, Kevin Strobel, Max Rudolph, and James Reiskytl

Secretary for call: Bob Guth

Web liaison: Kevin Strobel

The minutes from the October 11 call have been posted to the SOA web site.

Bob Guth has agreed to become the chair of this group, replacing Tom Edwalds who has been the chair since 2002. Tom will remain active with the group. The group name becomes the "Extreme Value Models Research Committee." Fred Tavan is the Research Coordinator for the Section.

Max Rudolph reported that the Risk Management Section is now open to members of the Casualty Actuary Society as well as members of the Society of Actuaries.

Cliff Angstman will be leading a panel discussion at the May 2005 ERM Symposium in Chicago. It was initially planned to be a buzz group, but the room arrangement required the change to panel discussion. It is session CSD3. Max will also be talking at the same time in another session.

A new book is available, entitled "Catastrophe Model: A New Approach to Managing Risk", edited by Patricia Grossi and Howard Kunreuther, 230 pages, Wharton.

We sent much of the time discussing a draft of a paper by Bob Guth. The subject is "Why Extreme Value Modeling is Useful." Tom and Max suggested that the paper be submitted to NAAJ after a few revisions. The NAAJ may be looking for more practical papers such as this one. A suggestion was made to add examples after the algorithm in the paper, such as the underwriting cycle problem. Does management set prices to match the cycle or to match an unknown market? There are limits to the exposure that a company would wish to take. When would an actuary ignore the models, in order to limit risk? Examples of extreme events where this is an issue would be secondary guarantees, interest rate spikes, or the October 1987 stock market drop as it impacts variable products. James noted that actuaries need to ask, "Are you paid enough to take this risk?" Irrational pricing in the marketplace might be another time to ignore models. Bob will work at revising the paper to respond to these comments.

We will plan for a call in about six weeks.

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