Slides

Report
Applied Actuarial Research Projects
Goldenson Center, University of Connecticut
MCFAM Distinguished Lecture Series
by Jay Vadiveloo
November 1, 2012
© 2012 Towers Watson. All rights reserved.
Outline

Background on the Goldenson Center

Role of the Director of the Goldenson Center

Role of Towers Watson

Applied research philosophy of the Goldenson Center

Major initiatives
- Replicated Stratified Sampling (RSS) modeling algorithm
- ERM for Small Businesses initiative
- National Retirement Satisfaction Index (NRSI)

Conclusion
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Background on the Goldenson Center, University of
Connecticut
• Established at UConn in 2009 with a $1M gift from the Goldenson
family
• Official name is the Janet & Mark L. Goldenson Center for Actuarial
Research
• Mission of the Goldenson is to undertake applied research projects
that serve the needs of industry in the region
• Annual income from the endowment serves as the budget for the
Goldenson Center for supporting students on applied actuarial
research projects
• Advisory Board established with representatives from key insurance
companies in the region
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Role of Director of the Goldenson Center
• Actuarial Science faculty member at UConn with a direct reporting
relationship to the Dean
• Manages the Goldenson Center and decides on projects to undertake
• Fulfills academic role by teaching one class each semester and
supervising PhD students
• Director is also a full time senior consultant at Towers Watson
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Role of Towers Watson
• Funds the position of Director of the Goldenson Center and provides
time off from Towers Watson duties to fulfill Director responsibilities
• Enables all earnings from the endowment to fully support students
• Provides real life client and research projects for students to work on
• Provides supervisory and project management support for joint
Goldenson Center – Towers Watson projects
• Joint role as Director and Towers Watson consultant provides
credibility to Goldenson Center’s mission to serve the needs of
industry
• Constant balancing act to ensure that there is no conflict of interest in
this dual role
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Research philosophy of the Goldenson Center
• Focuses only on applied actuarial research
• Research projects come from industry needs
• Completed research projects can be immediately applied to benefit
industry
• Research projects have the potential of being commercialized
• Ideal research projects satisfy all of the above and also have some
academic/theoretical underpinnings
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Key Research Projects: Replicated Stratified Sampling
•
RSS is a new “smart modeling” technique that is intended to dramatically speed up run times for
complex insurance calculations
•
Uses randomly selected samples to calculate the risk metric of interest, replicates the process to
produce independent estimates of the risk metric and reduce sampling error, and combines these
estimates to come up with the final RSS estimate
•
It allows you to run your models with a much smaller data set to deliver accurate results quickly
- Simple, easy to understand, and based on widely-used, academically sound statistical
techniques
- User has full control over the parameters, including error tolerance
- Requires no new investment in actuarial modeling software
- Very little ongoing maintenance required
*Covered by U.S. Patents No. 8,126,747 and No. 8,131,571
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RSS Parameters:
n = # of strata
k = # of samples/replications
RSS Technique
Underlying
population
Stratum
1
Stratum
2
…
Stratum
n
Sample
1
Sample
2
…
Sample
k
RSS Output
Metrics:
Batch File
Base Run
Sensitivity
1
Estimated changes
in underlying
population
…
Sensitivity
r
RSS Processor
8
Key Research Projects: Replicated Stratified Sampling
• RSS satisfies all the criteria listed in Goldenson Center’s research
philosophy
• Could transform how all financial modeling will be done in the future
- Awarded two U.S. patents in March 2012
- Feature article in Sunday, May 13, 2012 New York Times
“Patents aren’t only for engineers”
- One of the 2012 Innovation Award winners from Insurance &
Risk magazine
- Currently being actively marketed by Towers Watson and
supports research of two PhD students
© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
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Key Research Projects: National Retirement Satisfaction Index
• Idea generated by two members of the Goldenson Center Advisory
Board
• Intent is to create an index which captures both financial and nonfinancial factors impacting retirement readiness
• Non-financial factors include:
- state of health at retirement
- level of adaptability (e.g., education and skills) at retirement and
impact on post-retirement income
- level of job satisfaction and impact on age at retirement
- impact of pre and post retirement financial planning on
retirement readiness
• A more holistic NRSI should provide a more positive, controllable and
dynamic picture of retirement readiness for the U.S. population
© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
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Key Research Projects: National Retirement Satisfaction Index
• NRSI construction currently involves a team of five professors, five
graduate students and support from Towers Watson’s Corporate
Research & Innovation (CRI) practice area
• NRSI will be updated annually
• NRSI will be jointly branded by Towers Watson and the Goldenson
Center and the findings of the NRSI will publicly available and actively
marketed
• NRSI has the potential to satisfy all the research philosophy criteria of
the Goldenson Center and generate the same level of publicity as
RSS
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Key Research Projects: Enterprise Risk Management for Small
Businesses
• Motivated by the following factors:
- Small businesses are the most important, largest and fastest
growing business segment of the U.S. economy
- Small businesses experience the highest failure rates
compared to large corporations
- There does not exist any formalized or institutionalized
enterprise risk management (ERM) principles for small
businesses
• Since small business owners are not willing to pay for ERM services,
over the past three years, the Goldenson Center has offered this
service free of charge to small businesses in the region
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Key Research Projects: Enterprise Risk Management for Small
Businesses
• Unbelievably successful initiative
- Students work in teams and have total autonomy on all aspects
of project from start to finish
- Great form of experiential education for students on doing nontraditional actuarial projects
- Presentations at Society of Actuaries’ conferences by students
together with business owners who attest to the benefits of this
initiative
- Interview with students by National Public Radio
- Article in May-June, 2012 Edition of Contingencies Magazine
- Approached by Actex publishers to write text book on ERM for
Small & Medium-Sized Enterprises
• Commercial potential if ERM done for a small business sector and
funded by large corporations which have a vested interest in the
success of the small business sector
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Conclusion
• The Goldenson Center has demonstrated that universities can play a
critical role in helping industry in the region above and beyond
preparing students to pass actuarial exams and provide a pool of new
hires for companies
• It is critical that actuarial research projects undertaken by universities
stem from industry needs and are done in partnership with industry
• Industry does not have the time or resources to undertake long-term
key research projects but by partnering with universities and led by
industry, this is possible.
• Students who have real life experience working on projects together
with strong actuarial skills, are far more marketable and valuable to
industry
© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
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Contact Information
Jay Vadiveloo, Ph.D, FSA, MAAA, CFA
Professor-in-Residence & Director
Janet & Mark L. Goldenson Center for Actuarial Research,
University of Connecticut &
Senior Consultant, Towers Watson
[email protected]
© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
towerswatson.com

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