Technology and Risk Management

The Allianz Group is using Google Earth to aid their risk management process -- a wonderful way to gain insight into their geographic risk clusters.

- Rick

Life Securitization

A nice article from Business Week titled "Profiting from Mortality." Securitization is an evolving area on both the casualty and life sides of the insurance industry. There are lots of adjectives that different people might apply to this "death bond" concept: important, complex, macabre,... It's an area with which many actuaries will want to become more familiar.

- Rick

Tough Times for Quants

An article from the Washington Post on Wall Street quants, and the recent market volatilty.

- Rick

Dental Insurance Isn't Painless

Wow.

Several amazing aspects to this story... But make sure you fully appreciate the bottom line: the insurer not only had to cover the out-of-court settlement, but was also ordered to pay $750,000 to the dentist.

- Rick

The Road to Near-Reality

Think simulation and modeling capabilities are improving every day?

Here's some persuasive evidence: a Wired article about EA Sports' "NCAA 08 Football" video game, which now has the capability of feeding and factoring into the game the real-time weather conditions of the selected stadium.

- Rick

2007 Catastrophe Potential

So, you think you're paying a lot for gasoline NOW? Here's a news item on an A.M. Best Co. report.

More generally with respect to catastrophes, I think one of the most fascinating developments to watch over the next couple of years will be whether the movement toward greater acceptance of global warning (and thus, according to its adherents, greater frequency and/or severity potential of catastrophes) will lead to wide acknowledgement of the need for higher property-casualty insurance rates and changes in underwriting standards...

- Rick

Interest Rates Dressed to the Nines

Here's an interesting short piece from Bloomberg. I didn't realize that in China, interest rates are always in multiples of nine.

An important point if anyone is ever trying to project future Chinese interest rates with a stochastic scenario generator or a dynamic financial analysis model!

- Rick

Speak Now, or Forever Hold Your Piece of the Pie

An interesting interview with one of the authors of some research on fear in the workplace (particularly, fear of speaking up and contributing to discussions) can be found at HBS Working Knowledge, a newsletter of the Harvard Business School. Title: "Do I Dare Say Something?"

For those who are early in their careers, or even still in school, it is important to remember that the longer you wait to become "participative," the harder it is to make that move. Don't talk just for the sake of talking -- but also don't underestimate your ability to contribute.

- Rick

Actuaries of Gasoline?

Here's an article from the News & Observer (Raleigh, North Carolina), about "ratemaking" for gas stations. It might be interesting to think about how the process used by these "actuaries of gasoline" differs from the traditional actuarial ratemaking process.

- Rick

When to Begin Taking Social Security

Here's an interesting NYT article on the debate over when to begin taking Social Security payments. Coincidentally, this weekend's WSJ had an article discussing the uncertainty regarding retirement expenses, and how some retirees find the expenses to be greater than they had anticipated.

- Rick

Greenspan and Probabilities

I often like to begin classes with a "current event" or some other item in the recent news. Often, these items deal with statistics or probabilities -- about which there are often communication or interpretation problems.

Since we're now into summer, I have no classroom forum in which to present the following -- so this blog is my outlet.

From (among other places) Bloomberg comes the following Alan Greenspan quote:

"At the moment, I still say as I said before, by algebraic implications, the odds are 2 to 1 we won't have a recession."

Yikes!

- Rick

The Ultimate Demographic Study

So, just how many people HAVE walked the earth? How many humans? Ever?

At least 20 years ago, I first heard the opinion expressed that there are as many, or more, people ALIVE now than who have ever lived and died. That always sounded incomprehensible to me on its surface -- but what ARE the relevant numbers? This article reports on a demographer who has tried to quantify this.

- Rick

Risk Man

Today's WSJ has an interview with Myron Scholes (available free here). Scholes is especially known for the Black-Scholes option pricing model, winning the Nobel Prize (received along with Robert Merton), and being a co-founder of Long Term Capital Management, which failed in 1998, shortly after the award of the Nobel. (In the interview, he is very honest and philosophical about the LTCM situation.)

This is a very nice piece, well worth reading. There are at least three specific comments that I found particularly interesting:

(1) The writer of the piece refers to Scholes as a "life-long student of risk." A wonderful title, and a great goal for many of us -- I like to tell my students that they should strive to become "students of the insurance industry and the actuarial profession." "Student of risk" is perhaps an even better goal and title.

(2) Scholes characterizes the financial system as moving between greater and lesser stability (or less and more risk taking). When the system becomes stable and quiet, people tend to begin taking more risks, lessening the stability. Lower stability leads to greater cautiousness and more stability, etc.

(3) When asked whether the LTCM collapse put the entire financial system in danger, Scholes admits he doesn't know. I would have thought such a view, which has occasionally been expressed, to be largely hyperbole. Interesting...

- Rick

Workers Compensation in New York

The state of New York recently announced a coming overhaul of the its workers compensation system. A NYT article can be found here.

NY is an interesting WC state -- costly, but at the same time relatively low on the benefits-to-workers scale (in comparison with other states). Naturally, that's a combination that wouldn't seem, on its surface, to be amenable to easy repair. Hopefully, this new approach can succeed.

There is also a short editorial in today's WSJ, looking at this announcement as a positive.

- Rick

Life Expectancies - By Country & Relative to Income

This chart is very nice. It shows, in animation, how per capita income versus life expectancy has changed for dozens of countries over the last 30 years. A number of different viewing options are available. Quite interesting for its data, as well as a nice pedagogic tool.

Related tools (as well as a link to the above-mentioned chart) can be found at www.gapminder.org .

- Rick

Risky Business

I usually mention "securitization" -- whether as a reference to various types of asset-backed securities, or to the securitization of insurance risk -- at some point in most of my classes. This is becoming an area that most actuaries should understand and appreciate.

Here's an opinion piece from Saturday's (December 30, way back in 2006!) Wall Street Journal, available here via the free section of wsj.com . The piece emphasizes the good of derivatives and securitization in their potential to more effectively manage risk. The end of the piece sums up nicely: "Risk is still out there. But as we leave a successful financial year and enter a new one, take comfort in the fact that all that buying, selling, swapping, trading and securitization of risk has actually made the financial system less risky. "

- Rick