Risk Management
Task Force

Extreme Value Models (EVM) Minutes

 

Extreme Value Models (EVM) Conference Call
August 22, 2005
9AM Central Time

Participants
Bob Guth (Leader), Max Rudolph, Steve Craighead, Jonathan Wang, Bernie Rabinowitz, Cliff Angstman, Scott Orr, Tom Edwalds and Kevin Strobel

Secretary for call: Max Rudolph

Web liaison: Kevin Strobel

  1. The minutes from the June 29 call have been posted to the SOA web site.

  2. Update from the Risk Management Section - deferred

  3. Web page update – some links are not working. Committee members should try out various links periodically and let Kevin S know if some are not working.

  4. Discussion of Jonathan Wang’s presentation – this morphed into a discussion of operational risk in general. It will continue to be a struggle until the process and data requirements are standardized. Specific topics included business continuity plans and power outages (need to test it live like you do a fire drill), spam and other IT stuff, fraud, internal audit role, risk concentration (especially from an HR perspective where most work in the home office), regulatory risk, and identification of key players. It was confirmed that insurers are not yet included in Basle 2, having received a specific exemption to allow more time to determine a consistent methodology for valuing liabilities.

  5. Round robin “How do you use EVT?” General topics were using standard deviation when the risks are random, defining parameters and models to represent the tail, consistency of underwriting throughout the UW cycle, economic capital (in general quants are not ready to model operational risks), and life insurance pricing (risk management or wishful thinking – term preferred risk, 10 year term products with breakeven year 11, life settlement driven assumptions, and everyone’s favorite – options granted are normally mispriced initially).

  6. Next calls – review David Sanders paper. In the future we might invite Harry Panjer to discuss copulas (can we add a link to the Embrechts paper for basic reading?). Future topics might include major types of EVM risks, how can risks be mitigated rather than just identified, presentations at future meetings

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