Milliman ERM 3.0

August 19th, 2014 No comments

The next phase of enterprise risk management (ERM) involves embedding risk management throughout a company to inform its critical decision-making processes. In this short film, Josh Corrigan explains how Milliman’s holistic approach to helping organizations prepare for “ERM 3.0” draws on a unique understanding of complex systems and behavioral science.

To learn more about Milliman’s ERM services, click here.

Milliman Solvency II Readiness Assessment Tool first industry survey: Ireland, life assurance

August 12th, 2014 No comments

Milliman developed the Solvency II Readiness Assessment Tool to help companies prepare and plan for Solvency II. The tool is designed for life and nonlife direct writing and reinsurance companies. It enables companies to rate themselves using a range of detailed questions covering the full scope of Solvency II. A score of 5 identifies areas that are 100% ready, whereas a score of 1 identifies areas where no progress has been made.

Thirteen life companies based in Ireland shared their current levels of preparedness. In this briefing, Milliman’s Andrew Kay and Mike Claffey have consolidated the results to give an overall idea of the issues facing companies.

High-performance cloud computing enhancing actuarial modeling

August 8th, 2014 No comments

Emerging technologies in cloud computing are transforming the actuarial profession. High-performance computing tools such as Milliman’s MG-ALFA offer clients the speed and scalability needed to process advanced analyses in real time.

In a new Contingencies article entitled “Fast forward: Emerging technology and actuarial practice,” principal Pat Renzi discusses the advantages of conducting complex calculations using a cloud-based actuarial modeling solution. Here is an excerpt from the article:

The actuarial firm Milliman began offering cloud computing in its life insurance computational software in 2010, said Pat Renzi, a Milliman principal with more than 30 years’ involvement in actuarial software. The firm developed its offering in a pilot project with Phoenix Life, an insurer based in the United Kingdom. The resultant savings in labor, operational, and capital costs were compelling. Some of the results, published last year in InsuranceERM, an online media service about risk and capital investment in the insurance industry, show that by operating in the cloud:

  • The production of quarterly numbers took 97.5 percent less time and required 95 percent fewer staff hours;
  • Manual processes were reduced from 900 to 44;
  • Individual modeling and processing systems decreased from hundreds to one unified platform;
  • Opportunities to grow business expanded;
  • The firm was better prepared for Solvency II and ICAS+ (a two-phased approach by the U.K.’s Financial Services Authority that enables insurers to use internal models developed in preparation for Solvency II in meeting financial capital adequacy standards);
  • Operational risk was lowered.

Since starting with Phoenix, Milliman has expanded its cloud-based option to 22 other clients. “We have two paths that companies are taking,” Renzi said, with use of the cloud for calculations finding quicker acceptance. Three clients are in the early stages of using [Integrate], Milliman’s [complete production modeling solution] in the cloud. The others have taken the [first] step by [utilizing the cloud for compute power only]. Using the cloud has been “incredibly powerful for actuaries,” said Renzi, who believes it’s just a matter of time before cloud computing is a common tool.

Because it supports complex calculations, Renzi said, the cloud will play a strong role in the development of new products. Calculations are made in the cloud via desktop or a mobile device using the Windows 8 operating system. “If you put your application in the cloud,” Renzi said, “it is accessible from anywhere and becomes collaborative.”

There are also cost savings. It’s less expensive to rent out cloud time than to invest in mega processors to run stochastic and other complex calculations. This makes the cloud a competitive leveler between life insurers. “The cloud allows everyone to have access, and you pay for it only when you need it,” Renzi said.

Finally, the cloud is almost infinitely scalable. By renting cloud time, Renzi said, clients have gained access to as much as 50,000 [compute] cores or processors—the equivalent of 50,000 single-processor personal computers or laptops.

Milliman’s cloud-based financial solution, Integrate, provides life insurance companies a holistic modeling environment that enables actuarial departments to manage risk and maximize productivity. To learn more, click here.

“Milliman on ERM Quantification” complimentary webinar series

August 5th, 2014 No comments

The number one challenge in building and executing the enterprise risk process is the challenge to adequately quantify risk exposures. Low maturity enterprise risk management (ERM) programs stop at comparing risk severity and ranking exposures in a list or register. While it sets a good foundation to better understand risks, this method does not make meaningful translations to financial statements.

Usually senior executives and boards of directors grow weary of heat maps, indexes, and simple risk registers, because they think mostly in terms of financial statement metrics, capital, and liquidity.

Introducing a tactical road map to ERM quantification and value creation, the Milliman Risk Advisory Services group is hosting a complimentary three-part webinar series titled “Milliman on ERM Quantification.” The first webinar of the series is now open to registration:

Become an ERM Trendsetter
Date: Tuesday, August 12, 2014

Mark Stephens, Managing Director at Milliman Risk Advisory Services, Executive Director at Milliman Risk Institute
Vikas Shah, FSA, FCAS, CERA, MAAA, Consulting Actuary at Milliman Risk Advisory Services

• Features of ERM proficiency levels
• Challenges of ERM value creation
• ERM strategy and best practices
• ERM Trendsetter road map

Register for the first webinar at This free webinar runs 45 minutes and offers a 15-minute Q&A session.

If you have any questions, please email Mark Stephens.

Insurance can protect your fantasy football league investment

August 1st, 2014 No comments

An estimated 33 million people participate in fantasy football each year, contributing to what has become a $2 billion industry. With some leagues charging as much as $10,000 to join, football fans should be happy to know that they can protect their investments by purchasing an insurance policy for their most productive players.

In his article “Real insurance for fantasy football,” Milliman’s Leighton Hunley offers some perspective on the underwriting and product pricing aspects of fantasy football insurance. Here is an excerpt from the article:

When you look at the existing FPP insurance product, the cost differential of insuring the highest-risk versus the lowest-risk players is relatively small. For example, consider an owner who pays an entry fee of $100 plus $50 on subscriptions and decides to insure his or her star player for $150. If the star is a low-risk player, the 9 percent premium comes to $13.50 compared to a premium of $19.50 at the injury-prone 13 percent rate.

Do those rates accurately reflect the risk exposure? Fox News reported that another provider paid out more than $15,000 in claims for the 2012 NFL season. But the story doesn’t say whether or not the total collected premiums made this a profitable line of business.

Technology is making more data available all the time, and this is easily accessible to insurers and fantasy owners alike. From an actuarial perspective, the player risk assessment needs to begin with historical injury data on the player’s position: How often do tight ends touch the ball? What is a quarterback’s exposure to injury on a game-by-game basis or a season-by-season basis?

Next, you’d address the player’s specific condition: How old is he? How long has he been in the league? Are there indications that his body is wearing down? If he’s a quarterback, you’d look at how often he gets sacked. If he runs with the ball, does he know how to slide or run out of bounds to safety? Or does he take the big hits — to show everyone how tough he is?

Finally, you’d move to a consideration of rule changes and trends in the league affecting how injured players are treated. Clearly, the overall NFL environment is now more cognizant of injuries, specifically head injuries, and rules are in place to make sure that there’s sign-off from the team doctor before players are permitted to come back in the game. Presumably, that rule would cut down on season-ending injuries.

But, at the same time, teams with more proactive approaches to protecting players might keep them out of more games, which could end up triggering more claims for the insurer to pay (note that FPP provides an email to policyholders containing a certificate of insurance, which provides details on how a claim will be triggered).

To learn more about fantasy football insurance, read Leighton’s blog post “Fantasy football insurance: An actuarial perspective.”

This article was published in Risk & Insurance.

Asia ERM Newsletter, July 2014

July 31st, 2014 No comments

The latest issue of Milliman’s Asia ERM Newsletter authored by Michael Daly, Richard Holloway, Sam Morgan, and Wing Wong, features an in-depth update on the China Risk Oriented Solvency System (C-ROSS). C-ROSS, China’s first-generation factor-based solvency regulation system, was put into place in 2007 after four years of preparation. It subsequently suffered from the same shortcomings as Europe’s Solvency I, a similar regime.

In 2012 plans and an implementation timeline were announced for a risk-based capital (RBC) solvency framework in China. Get the latest developments in the newsletter, which also includes a report on a recent RBC 2 industry round-table discussion held in Singapore, updates on other developments in China, Taiwan, and Indonesia, and more information of interest to enterprise risk management professionals.

Another “Sharknado” could take the insurance industry by storm

July 29th, 2014 No comments

Carbone-WilliamAccording to forecasts by the basic-cable network SyFy, a storm similar to the sharknado that hit Los Angeles last year is making its way toward the New York area. While AIR Worldwide estimated the losses from last year’s event at $100 billion, estimates for the impact on New York would heavily depend on the storm’s path. Let’s take a look at what impact the anticipated storm could have on the tristate area’s insurance market.

Is my property covered?
New York area homeowners should know that, much like the Los Angeles area residents, their policies will cover damage from windstorms, including tornados and hurricanes, subject to a windstorm deductible. These deductibles vary by policy and, more importantly, by region. Insureds in Tornado Alley will likely be subject to more significant windstorm restrictions, often needing a policy extension to ensure adequate coverage, while New Yorkers are more likely to have manageable windstorm deductibles since they are not as prone to these losses. The impact of windstorm deductibles on both an insured’s wallet and the insurer’s bottom line can be significant, depending on how a given storm is classified. In 2012, the use of executive orders and press releases to waive hurricane deductibles after Superstorm Sandy shifted a portion of the claim costs from the insureds to the insurer.

Fortunately for New York area residents, flying debris caused by windstorms is generally covered by homeowners policies. Similarly, comprehensive auto coverage would also cover physical damage that is due to debris from a windstorm. In this paragraph, “debris” can be read to mean “flying sharks.”  These coverages are important as a significant portion of the loss caused by tornadoes is due to flying debris damaging property that narrowly missed a direct hit, but was close enough to suffer the consequences.

Who pays the bills for shark attacks?
Health insurance policies cover attacks by animals, so New Yorkers can rest easy knowing their stitches will be covered. However, the tourist population should ensure that they have adequate visitors’ health insurance, as other countries’ universal healthcare policies do not apply here. Similarly, U.S. residents should check their health insurance policies before traveling abroad. Many health insurance policies operate differently for travelers abroad, and knowing what is covered in the case of a shark attack, or other medical emergency, could have a major financial impact.

For anyone keeping sharks as pets, you would be liable if a twister lifted your shark from your property and it were to bite a neighbor. Luckily your homeowners policy would cover this liability, assuming your specific shark was not an excluded breed. Many providers will deny coverage or alter policies for dog breeds considered “dangerous,” while other insurers will review dogs on a case-by-case basis. It can be assumed the same review would go into sharks kept as pets, so you may be covered for both your hammerhead and Labradoodle but not for your great white or Doberman.

Any new considerations
After seeing how the Los Angeles event ended, there are other possible implications in the New York insurance market that may come into play. It would be wise to review the intended uses on all recently purchased chainsaws, as many product warranty policies do not cover unintended uses, such as extraction from a shark torso. Additionally, the soft aviation market may need to harden a bit if helicopter pilots plan to help end a sharknado in the area. Last year’s storms ended when homemade bombs made out of kerosene containers were thrown from a helicopter into the twister, with the explosions equalizing the pressure. Without reviewing the underwriting, these types of flights are likely riskier than those anticipated in the standard policy.

With great white sightings on the rise in Cape Cod and a relatively rare Boston area tornado this week, a sharknado in the region appears possible. Luckily, it seems that most potential sources of loss for the average resident would be covered. Policy deductibles and exclusions may increase the final cost to insureds, but they likely won’t be footing the whole bill. It helps to know that the impact of a potential sharknado won’t take too big of a bite out of your wallet.

Will Carbone - Sharknado Picture

Will Carbone conducting research for this blog.

Financial implications of raising California’s MICRA cap

July 28th, 2014 No comments

California’s Medical Injury Compensation Reform Act (MICRA) has been the blueprint used by states to reform their medical professional liability (MPL) markets since its enactment in 1976. In part, the landmark legislation helps reduce MPL premiums and increase the availability of coverage for physicians by capping noneconomic damages at $250,000.

A pending ballot initiative in California now aims to increase the cap. In this Best’s Review article by Milliman’s Susan Forray and Stephen Koca, the consultants examine the financial effects an increased cap can have on the state’s MPL industry. They also consider how other states with similar tort reforms may come into the crosshairs.

Here is an excerpt:

Three dozen states have adopted some form of a cap on damages over the years, although in 12 of these states the cap has been overturned or otherwise invalidated, and remains overturned in most of these cases. And while these caps are often less effective than California’s, either because of higher limits or exceptions, they followed MICRA’s lead and reduced costs in many MPL markets.

Texas is perhaps the best example of a state whose MPL premium has been reduced by the effects of a cap on noneconomic damages. MPL premiums in Texas had been in close step with national trends until 2003, the year reforms were enacted in the state. Premiums declined relative to national levels a year after reforms were enacted, and continued to moderate for several years.

While nationwide premium per physician is approximately 25% less than in 2003, MPL premiums in Texas have fallen by more than 60% since that time—a clear demonstration of the impact that reforms have had on the MPL costs in the state, and a warning sign of potential increases that could be seen in California if the cap is increased.

For more perspective on the impact a higher cap would have on MPL claims, read Stephen’s article “The end of an era for noneconomic caps?

Capital management in a Solvency II world

July 21st, 2014 No comments

Solvency II will change the way insurance and reinsurance undertakings determine their capital requirements as well as introducing new rules with regard to what forms of capital can be used to meet those requirements.

This paper by Eamonn Phelan, Scott Mitchell, and Sinead Clarke addresses some of the key issues, including the need for a robust decision-making framework, how investment strategy fits in, uses of reinsurance, and the new regulatory landscape. The paper also outlines Pillar 2 and Pillar 3 requirements.

Life insurance-linked securities: 18 months in review

July 17th, 2014 No comments

In 2013 and thus far in 2014, we estimate that over USD15 billion in reserve financing and embedded value (EV) financing transactions were completed, in spite of extensive discussions at the National Association of Insurance Commissioners (NAIC) on the use of captives to finance excess reserves. Most of these transactions involved the financing of excess reserves for U.S. life insurers selling level premium term insurance subject to Regulation XXX or universal life products with secondary guarantees subject to Actuarial Guideline 38. The forms of financing continued to evolve in 2013.

In addition to the reserve financing transactions and the EV financing transactions, in 2013 and thus far in 2014 the market saw at least USD530 million in transactions to hedge catastrophic morbidity or mortality risk, and continued activity in the market to hedge longevity and other pension risks.

This paper explores the life insurance-linked securities market over the past 18 months and looks ahead to the remainder of 2014.