Benefits 4 and 5 An important part of increasing regulatory understanding while

Benefits 4 and 5 an important part of increasing

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be of invaluable assistance in this regard. Benefits #4 and #5 An important part of increasing regulatory understanding while focusing resources on higher risk areas is making sure that the questions asked in Benefits 1, 2, and 3 are addressed in the appropriate order. In addition, the questions must be adjusted to reflect the unique nature of the insurer’s current business model. For example, a start-up company would likely require regulatory resources to be focused on initial pricing assumptions. On the contrary, a company that has decided to run-off certain lines of business might require heavier resources focused on the reserving and claim-handling processes. © 2006 National Association of Insurance Commissioners 8
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Attachment Three Casualty Actuarial (C) Task Force 6/11/06 Benefit #6 Another important aspect of enhancing the value of surveillance work requires insurance industry experts to identify metrics for monitoring on a year-to-year basis to ensure emerging issues are promptly identified. Insurers and regulators using metrics must also balance the use of standard industry benchmarks (e.g., RBC, IRIS Ratios, CARRMEL, etc.) with those tracked by insurance company professionals and regulators (e.g., the “bright-line indicator” for determining whether a risk of material adverse deviation should be present). In the end, whether a test provides a range of possible warning levels or serves as a bright-line indicator, it is important that the metrics are clearly communicated so that effective control systems are established to monitor and minimize risks going forward. 4: Risk Management In the previous section, we discussed specifically the ways in which regulatory actuaries can assist with the RAWG’s identified enhancements and goals for the new surveillance framework. In this section, we discuss in greater detail how casualty actuaries in regulation can contribute to the risk management endeavor within the framework of the nine risk classifications identified in Appendix F of the Risk- Focused Surveillance Framework . For some risk classifications, casualty actuaries can assist in the identification and evaluation of risk. Credit Risk Casualty actuaries have not traditionally been involved in most areas of credit risk. However, actuaries could play a significant role in evaluating uncollectible amounts from reinsurers. The actuary’s expertise in estimating the frequency of default and degree of severity of such incidents is a unique skill in evaluating the magnitude of the credit risk. Market Risk Casualty actuaries can help evaluate market risk. The Casualty Actuarial Society (CAS) has conducted research in developing basic economic engines within dynamic financial analysis and enterprise risk management models that cover the critical elements required for modeling investment performance. Developing economic capital models involves modeling volatility in investment performance.
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