Morgan’s mess

JPMorgan’s $2B trading loss is pretty big news, but some other big news, if you are interested in ERM, came early in the conference call. (You’ll have to sign up to listen.) “We’d shown average VaR at $67″ million for the chief investment office, CEO Jamie Dimon said. “it will now be $129″ million. (Educational [...]

Interest rates and the hard market

Sector and Sovereign Research has an interesting take on the importance of investment income (or, these days, the lack thereof) in insurance pricing: For most investors, this is truly a no-brainer: lower yields mean pricing must go up, full stop.  For managements, the issue is more complex, and it is not at all clear that [...]

Solvency II: Internal models shrink capital needs, QIS5 results show

EIOPA summarizes the results of QIS5 in press release here (pdf). Compared to the calculation under Solvency I standards, insurance groups have €86 billion less surplus capital available, which is a reduction of 44%. However, the QIS5 exercise demonstrated that this effect would be largely absorbed if insurance groups apply internal models and transitional measures [...]

Europe’s stress test: an update

An update on this item regarding Perils’ development of a 1-in-200 year cat loss as part of Solvency II’s QIS5 analysis: I wasn’t sure how you get a diversification benefit from a single catastrophe. Turns out we’re not looking at one catastrophe here: The graph shows the 1-in-200 loss for each country. The sum of [...]

Mandelbrot and the quant jockeys

Why didn’t people in finance pay attention to Benoit Mandelbrot? Justin Fox’s obituary for the father of fractals talks about his contribution to finance – being a champion of the random walk and the efficient market hypothesis. As long as quantitative finance was mostly exploratory in nature, Mandelbrot and the economists and finance professors got [...]

Follow the rules that aren’t quite written

At a Reactions magazine insurance event, U.S. regulators showed their frustration at having to qualify as Euro-compliant. Quoth FL Commissioner Kevin McCarty: Solvency II is a theoretical standard – it is not in place yet. It is difficult to say what effect Solvency II would have, because it is not yet implemented, whereas we have [...]

Willis deepens academic ties

The brokerage’s research arm, Willis Research Network, adds 12 US members, according to InsuranceERM. WRN promotes the science of extreme events through collaboration among universities, insurers and reinsurers, catastrophe modelling companies, government research institutions and non-governmental organizations. Heavy cribbing from the story: The research interests being supported by [the network] at these new members cover [...]

The future of actuaries – the view at Lloyd’s

InsuranceERM interviews Henry Johnson, actuary at Lloyd’s of London. The interview focuses on how the operation is adopting Solvency II, but I’d like to focus on other parts: First, what capital regulation means to the actuarial profession. In short, actuaries are becoming more important contributors:

News from the actuarial reserving conference

Tidbits I picked up at the Casualty Actuarial Society’s Casualty Loss Reserving Seminar: The NAIC update of its solvency standards is unlikely to have the sophisticated modeling possibilities that Solvency II has in Europe. (Recall S-II creates a model to set capital, then basically suggests that insurers that could do a better job should submit [...]

Basel III requirements released

Basel III capital standards released today. The press release summarizes thoroughly and provides links with details, but Kevin Drum provides the layman’s tour: The most important part of the agreement covers “core” Tier 1 equity. For all practical purposes, you can think of this as real capital that can’t be monkeyed around with too much [...]