André Lefebvre, FCAS, MAAADirector – ART Underwriting

Winterthur InternationalCasualty Loss Reserve Seminar

September 18, 2000Minneapolis, MN

Actuary and Risk Manager -A New Relationship

What Lies in the Future?

• Risk Manager of the Future?• Actuary of the Future?• Other Professionals• Brief Overview of CAS Activities

Changing World

• Predictable earnings lead to higher stock market valuations.

• Changing standards of corporate governance call for the identification and mitigation of the corporation’s significant risks.

Risk Manager of the Future?

• Chief Risk Officer– Identify, analyze, and quantify risks

across corporation.– Determine optimum means of

mitigating, absorbing, and transferring risk.

Chief Risk Officer

• CRO looks at risks formerly handled in separate silos:– Insurance - Hazard or P/C Risks– Treasury - Financial Risks– Audit - Compliance Risks– Trading - Market Risks

Drivers Behind CRO Approach

• Unforgiving stock market where missed earnings projections equate to significant drops in stock prices.

• Regulators have eliminated special accounting methods formerly used to manage earnings.

• FAS 133 complicates the hedging process.

Change Brings Opportunity

• Looking at risk on a broader basis will lead to standardization of tools and methods used to quantify risk.

• Overlap and sharing of knowledge and skills between actuaries and other financial quantitative analysts.

Actuary of the Future?

• Current Definition:Actuaries are trained to evaluate contingencies, measure risk, and analyze ways to manage risk.

• Future Definition?:Actuaries are trained to evaluate contingencies, measure risk, and analyze ways to manage risk.

Actuary of the Future?

• Understanding of the general business principles.

• Ability to evaluate various types of risks.

• Assist companies understand these risks.

• Help companies manage these risks.

Other Professionals

• Chartered Financial Analyst (CFA).• Financial Risk Management.• Financial Engineering.• SOA Actuaries.

SOA Actuaries

• SOA Examination– Course 8: Advanced Specialized

Actuarial Practice – Finance (six hours of written-answer questions).

– This course trains students in the financial aspects of operating and evaluating a business, with particular emphasis on the business of financial intermediaries.

SOA - Course 8

• The course will provide students with an understanding of several subjects, including:– accounting;– corporate finance;– investment banking;– strategic planning;– financial statement analysis; and– the operations of financial areas.

CAS Task Force on Nontraditional Practice Areas

• Created in 1998.• Purpose was to formulate

recommendations as to how the CAS can better support its members that are currently working, or wish to work in the future, in nontraditional practices areas.

• Issued report to CAS Board of Directors in late 1999.

CAS Task Force on Nontraditional Practice Areas

• One of the recommendations was that the CAS should expand its education and research functions to support new, priority practice areas much as it did with DFA several years ago and it should concentrate on developing specific skill sets that have general applicability to a wide-range of practice areas, including Enterprise Risk Management.

CAS Advisory Committee on Enterprise Risk Management

• Established earlier this year as a result of the recommendation from the Task Force on Nontraditional Practice Areas.

• Purpose is to identify research and education that the CAS should undertake in the area of Enterprise Risk Management and recommend methods, priorities, and timetables to the Executive Council for implementing that research and education.

CAS Advisory Committee on Enterprise Risk Management

• Proposed working definition of ERM for CAS purposes:– “ERM is the discipline by which

organizations in all industries assess, control, exploit, finance and monitor risks from all sources for the purpose of increasing the organization’s short- and long-term value to its stakeholders.”