-
A Flexible Hierarchical Insurance Claims Model with Gradient Boosting and Copulas North American Actuarial Journal Pub Date : 2024-03-06 Justine Power, Marie-Pier Côté, Thierry Duchesne
Predicting future claims is an important task for actuaries, and sophisticating the claim modeling process allows insurers to be more competitive and to stay financially sound. We propose a hierarc...
-
Auto Insurance Pricing Using Telematics Data: Application of a Hidden Markov Model North American Actuarial Journal Pub Date : 2024-02-02 Qiao Jiang, Tianxiang Shi
This study develops a hidden Markov model (HMM)-based clustering framework to predict auto insurance losses using driving characteristics extracted from telematics data. Through a simulation experi...
-
Measuring Discrete Risks on Infinite Domains: Theoretical Foundations, Conditional Five Number Summaries, and Data Analyses North American Actuarial Journal Pub Date : 2024-02-06 Daoping Yu, Vytaras Brazauskas, Ričardas Zitikis
To accommodate numerous practical scenarios, in this article we extend statistical inference for smoothed quantile estimators from finite domains to infinite domains. We accomplish the task with th...
-
Claims Reserving with a Robust Generalized Additive Model North American Actuarial Journal Pub Date : 2024-01-30 Le Chang, Guangyuan Gao, Yanlin Shi
In the actuarial literature, many existing stochastic claims-reserving methods ignore the excessive effects of outliers. In practice, however, these outlying observations may occur in the upper tri...
-
Epidemic Financing Facilities: Pandemic Bonds and Endemic Swaps North American Actuarial Journal Pub Date : 2023-12-18 Shimeng Huang, Ken Seng Tan, Jinggong Zhang, Wenjun Zhu
The COVID-19 pandemic has had a with severe human toll and catastrophic economic losses and has also heightened the need for more effective solutions for managing epidemic-related risks. This artic...
-
Guaranteed Minimum Maturity Benefits in a Self-Exciting Stochastic Mortality Model: Pricing, Estimation and Calibration North American Actuarial Journal Pub Date : 2023-12-18 David Baños, Å. H. Sande, Carlo Sgarra
The guaranteed minimum maturity benefit (GMMB) is quite a popular feature embedded in several unit-linked policies offered by insurance companies. The value of this benefit depends on several proce...
-
Estimating Underdiagnosis of Patients in Chronically Ill Populations North American Actuarial Journal Pub Date : 2023-12-18 Andrew Stocking, Ian Duncan, Nhan Huynh
Diagnosis coding in administrative data is often incomplete and introduces inaccurate assessments of patients’ health outcomes. The underdiagnosis of chronic conditions reduces the ability to corre...
-
Gender Differences in Reserving Conservatism North American Actuarial Journal Pub Date : 2023-10-23 Xin Che, Jianren Xu
Given the rapidly growing industry-wide trends to promote diversity, we provide the first evidence that executive gender differences impact insurer corporate decisions by examining reserve manageme...
-
A Reverse ES (CVaR) Optimization Formula North American Actuarial Journal Pub Date : 2023-10-19 Yuanying Guan, Zhanyi Jiao, Ruodu Wang
The celebrated Expected Shortfall (ES, also known as tail Value at Risk or conditional Value at Risk) optimization formula implies that ES at a fixed probability level is the minimum of a linear re...
-
Estimation, Comparison, and Projection of Multifactor Age–Cohort Affine Mortality Models North American Actuarial Journal Pub Date : 2023-10-13 Francesco Ungolo, Len Patrick Dominic M. Garces, Michael Sherris, Yuxin Zhou
Affine mortality models, developed in continuous time, are well suited to longevity risk applications including pricing and capital management. A major advantage of this mortality modeling approach...
-
Optimality of Threshold Strategies for Spectrally Negative Lévy Processes and a Positive Terminal Value at Creeping Ruin North American Actuarial Journal Pub Date : 2023-10-13 Chong-Rui Zhu
This article investigates a dividend optimization problem with a positive creeping-associated terminal value at ruin for spectrally negative Lévy processes. We consider an insurance company whose s...
-
Modeling and Forecasting Subnational Mortality in the Presence of Aggregated Data North American Actuarial Journal Pub Date : 2023-10-12 Jean-François Bégin, Barbara Sanders, Xueyi Xu
This study proposes a new approach to modeling subnational mortality that relies on individual features (e.g., sex, geographical region, socioeconomic status) instead of dealing directly with subpo...
-
Storm CAT Bond: Modeling and Valuation North American Actuarial Journal Pub Date : 2023-10-06 Shimeng Huang, Jinggong Zhang, Wenjun Zhu
The frequency and intensity of weather-related catastrophes, such as storms and floods, have been increasing due to climate change. This leads to rising storm catastrophe risks to the property–casu...
-
Event Studies for Publicly Traded Insurers: An Investigation of the Bad-Model Problem North American Actuarial Journal Pub Date : 2023-09-08 Leon Chen, Steven W. Pottier
The potential that abnormal returns are due to a misspecified expected (normal) return model is well known in the event study literature. Prior research shows that this “bad-model problem” is serious in long-run studies, and can also be problematic in short-run studies for firms grouped by certain characteristics. We investigate the bad-model problem for a large sample of insurance firms over an 18-year
-
Modeling Payment Frequency for Loss Reserves Based on Dynamic Claim Scores North American Actuarial Journal Pub Date : 2023-08-07 Juan Sebastian Yanez, Jean-Philippe Boucher, Mathieu Pigeon
By modeling reserves with microlevel models, individual claims information is better preserved and can be more easily handled in the fitting process. Some of the claim information is available immediately at the report date and remains known until the closure of the claim. However, other helpful information changes as claims develop; for example, the previously observed number of payments. In this
-
A Unified Framework for Insurance Demand and Mortality Immunization North American Actuarial Journal Pub Date : 2023-07-26 Hua Chen, Jin Gao, Wei Zhu
This article explores an individual’s optimal insurance choice and an insurer’s optimal product mix consisting of whole life insurance and deferred life annuities in a market equilibrium framework. On the demand side, the insured decides an optimal insurance choice by maximizing lifetime expected utility. On the supply side, an insurer chooses an optimal product mix by minimizing the conditional value-at-risk
-
An Asymptotic Result on Catastrophe Insurance Losses North American Actuarial Journal Pub Date : 2023-07-26 Yiqing Chen, Jiajun Liu
Consider an insurer who both sells catastrophe insurance policies and makes risky investments. Suppose that insurance claims arrive according to a Poisson process and the price of the investment portfolio evolves according to a general stochastic process independent of the insurance claims. In the focus of catastrophe risk management are catastrophe insurance losses. For the case of heavy-tailed claims
-
Bowley Insurance with Expected Utility Maximization of the Policyholders North American Actuarial Journal Pub Date : 2023-07-19 Tim J. Boonen, Wenjun Jiang
This article studies the Bowley solution for a sequential game within the expected utility framework. We assume that the policyholders are expected utility maximizers and there exists a representative policyholder who faces a fixed loss with given probability and no loss otherwise. This policyholder selects the optimal indemnity function in response to the pricing kernel set by the insurer. Knowing
-
Calibrating Distribution Models from PELVE North American Actuarial Journal Pub Date : 2023-06-29 Hirbod Assa, Liyuan Lin, Ruodu Wang
The Value at Risk (VaR) and the expected shortfall (ES) are the two most popular risk measures in banking and insurance regulation. To bridge between the two regulatory risk measures, the probability equivalent level of VaR-ES (PELVE) was recently proposed to convert a level of VaR to that of ES. It is straightforward to compute the value of PELVE for a given distribution model. In this article, we
-
GAMLSS for Longitudinal Multivariate Claim Count Models North American Actuarial Journal Pub Date : 2023-06-15 Roxane Turcotte, Jean-Philippe Boucher
By generalizing traditional regression frameworks, generalized additive models for location, scale, and shape (GAMLSSs) allow parametric or semiparametric modeling of one or more parameters of distributions that are not members of the linear exponential family. Consequently, these GAMLSS approaches offer an interesting theoretical framework to allow the use of several potentially helpful distributions
-
Predictability and Financial Sufficiency of Health Insurance in Colombia: An Actuarial Analysis With a Bayesian Approach North American Actuarial Journal Pub Date : 2023-06-09 Oscar Espinosa, Valeria Bejarano, Jeferson Ramos
Every year, the Colombian government provides a prospective premium, known as the capitation payment unit (CPU), for each affiliated person (according to sex, region, and age) to each health insurance company, in order to manage the corresponding risk in health. This article studies the prediction capacity for the health expenditure for the more than 20 million affiliates to the contributory regime
-
In Memoriam: Ken Seng Tan and His Contributions to Actuarial Science, Finance, and Agricultural Insurance North American Actuarial Journal Pub Date : 2023-06-08 Patrick L. Brockett
Published in North American Actuarial Journal (Vol. 27, No. 2, 2023)
-
Antidiscrimination Insurance Pricing: Regulations, Fairness Criteria, and Models North American Actuarial Journal Pub Date : 2023-06-08 Xi Xin, Fei Huang
On the issue of insurance discrimination, a grey area in regulation has resulted from the growing use of big data analytics by insurance companies: direct discrimination is prohibited, but indirect discrimination using proxies or more complex and opaque algorithms is not clearly specified or assessed. This phenomenon has recently attracted the attention of insurance regulators all over the world. Meanwhile
-
Robust Dividend, Financing, and Reinsurance Strategies Under Model Uncertainty with Proportional Transaction Costs North American Actuarial Journal Pub Date : 2023-06-06 Guohui Guan, Lin He, Zongxia Liang, Yang Liu, Litian Zhang
This article studies the robust dividend, financing, and reinsurance strategies for an ambiguity aversion insurer (AAI) under model uncertainty. The AAI controls its liquid reserves by purchasing proportional reinsurance, paying dividends, and issuing new equity. We consider model uncertainty and suppose that the AAI is ambiguous about the liquid reserves process, which is described by a class of equivalent
-
A Dynamic Stochastic Integrated Climate–Economic Spatiotemporal Model for Agricultural Insurance Products North American Actuarial Journal Pub Date : 2023-06-06 Suikai Gao, Guillaume Bagnarosa, Gareth W. Peters, Matthew Ames, Tomoko Matsui
We propose a new methodology for area yield distribution modeling. We explore a variety of new hybrid data emulators for spatialtemporal statistical modeling of agricultural crop yields. The regres...
-
Coherent Mortality Forecasting with a Model Averaging Approach: Evidence from Global Populations North American Actuarial Journal Pub Date : 2023-05-12 Yanlin Shi
Accurate forecasts and analyses of mortality rates are essential to many economic and finance practices, such as the designing of pension schemes. Recent studies have proposed advanced mortality mo...
-
Method of Winsorized Moments for Robust Fitting of Truncated and Censored Lognormal Distributions North American Actuarial Journal Pub Date : 2023-05-09 Chudamani Poudyal, Qian Zhao, Vytaras Brazauskas
When constructing parametric models to predict the cost of future claims, several important details have to be taken into account: (1) models should be designed to accommodate deductibles, policy l...
-
A Deep Factor Model for Crop Yield Forecasting and Insurance Ratemaking North American Actuarial Journal Pub Date : 2023-04-11 Wenjun Zhu
Effective agricultural insurance and risk management programs rely on accurate crop yield forecasting. In this article, a novel deep factor model for crop yield forecasting and crop insurance ratem...
-
A Two-Part Model of the Individual Costs of Chronic Kidney Disease North American Actuarial Journal Pub Date : 2023-04-11 Brian Hartman, Courtney Larson, Christopher Kunkel, Cason Wight, Richard L. Warr
Chronic kidney disease (CKD) affects many lives and has a large impact on health systems around the world. To better understand and predict costs for insurance plan people with CKD in the United St...
-
Key Drivers of Long-Term Rates of Mortality Improvements in the United States: Period, Cohort, and Cause of Death Analysis, 1959–2016 North American Actuarial Journal Pub Date : 2023-03-24 Andrés M. Villegas, Madhavi Bajekal, Steven Haberman, Luke Zhou
The main objective of this article is to identify significant mortality drivers in the U.S. population that have a high likelihood of being linked to the historical improvement or deterioration of ...
-
Society of Actuaries and North American Actuarial Journal Announce New Editor North American Actuarial Journal Pub Date : 2023-03-20
Published in North American Actuarial Journal (Vol. 27, No. 1, 2023)
-
A Comparison of Index-Linked Annuities North American Actuarial Journal Pub Date : 2023-03-21 Thorsten Moenig, Bobby Samuelson
In recent years, index-linked annuities (ILAs) have gained considerable popularity in the U.S. retirement savings market, reflected by rapidly increasing sales and new product developments. These p...
-
A Tractable Class of Multivariate Phase-Type Distributions for Loss Modeling North American Actuarial Journal Pub Date : 2023-03-10 Martin Bladt
Phase-type (PH) distributions are a popular tool for the analysis of univariate risks in numerous actuarial applications. Their multivariate counterparts (MPH∗), however, have not seen such a proli...
-
Enhancing Mortality Forecasting through Bivariate Model–Based Ensemble North American Actuarial Journal Pub Date : 2023-03-09 Liqun Diao, Yechao Meng, Chengguo Weng, Tony Wirjanto
We propose a bivariate model–based ensemble (BMBE) method to borrow information from the mortality data of a given pool of auxiliary populations to enhance the mortality forecasting of a target pop...
-
Alternative Predictive Models for Medicare Patient Cost North American Actuarial Journal Pub Date : 2023-03-08 Xiyue Liao, Ian Duncan, Samuel O’Neill
As health care expenditures increase, patient cost mitigation becomes more essential. Cost mitigation through intervention programs such as accountable care organizations relies on the ability to a...
-
Economic Representative Scenarios for Variable Annuity Dynamic Hedging of GMMB and GMDB North American Actuarial Journal Pub Date : 2023-03-08 Emmanuel Hamel, Yvonne Chueh, Donald Davendra
Variable annuities introduce significant risk for the insurers. To control this risk, insurers generally use dynamic hedging models. In practice, calculations for dynamic hedging models for variabl...
-
Valuing Lifetime Withdrawal Guarantees in RILAs North American Actuarial Journal Pub Date : 2023-02-03 Thorsten Moenig, Chenxin Xu
In recent years, registered index-linked annuities (RILAs) have reinvigorated the equity-linked annuities market in the United States. Now insurers are beginning to add lifetime withdrawal guarante...
-
Flexible Weather Index Insurance Design with Penalized Splines North American Actuarial Journal Pub Date : 2023-02-03 Ken Seng Tan, Jinggong Zhang
In this article, we propose a flexible framework for the design of weather index insurance (WII) based on penalized spline methods. The aim is to find the indemnity function that optimally characte...
-
Multivariate Insurance Portfolio Risk Retention Using the Method of Multipliers North American Actuarial Journal Pub Date : 2023-01-27 Gee Y. Lee
For an insurance company insuring multiple risks, capital allocation is an important practical problem. In the capital allocation problem, the insurance company must determine the amount of capital...
-
The Automated Bias-Corrected and Accelerated Bootstrap Confidence Intervals for Risk Measures North American Actuarial Journal Pub Date : 2022-12-02 Bettina Grün, Tatjana Miljkovic
Different approaches to determining two-sided interval estimators for risk measures such as Value-at-Risk (VaR) and conditional tail expectation (CTE) when modeling loss data exist in the actuarial...
-
Computing and Estimating Distortion Risk Measures: How to Handle Analytically Intractable Cases? North American Actuarial Journal Pub Date : 2022-11-30 Sahadeb Upretee, Vytaras Brazauskas
In insurance data analytics and actuarial practice, distortion risk measures are used to capture the riskiness of the distribution tail. Point and interval estimates of the risk measures are then e...
-
Are Internal Capital Markets Ex Post Efficient? North American Actuarial Journal Pub Date : 2022-11-08 James M. Carson, Evan M. Eastman, David L. Eckles, Joshua D. Frederick
Internal capital markets enable conglomerates to allocate capital to segments throughout the enterprise. Prior literature provides evidence that internal capital markets efficiently allocate capita...
-
Non-Life Insurance Risk Classification Using Categorical Embedding North American Actuarial Journal Pub Date : 2022-11-01 Peng Shi, Kun Shi
This article presents several actuarial applications of categorical embedding in the context of non-life insurance risk classification. In non-life insurance, many rating factors are naturally categorical, and often the categorical variables have a large number of levels. The high cardinality of categorical rating variables presents challenges in the implementation of traditional actuarial methods
-
Conformal Prediction Credibility Intervals North American Actuarial Journal Pub Date : 2022-10-25 Liang Hong
In the predictive modeling context, the credibility estimator is a point predictor; it is easy to calculate and avoids the model misspecification risk asymptotically, but it provides no quantificat...
-
An Empirical Assessment of Regulatory Lag in Insurance Rate Filings North American Actuarial Journal Pub Date : 2022-10-20 Patricia Born, J. Bradley Karl, Robert Klein
In this article, we evaluate factors that help to explain an important source of variation in insurers' rate filing experiences across states and over time for personal automobile insurance. Using a new source of data from personal auto insurance rate filings for all U.S. insurers, we examine factors associated with regulatory lag. The timeliness of the disposition of insurers' rate filings is important
-
Why Changes in PBGC and FDIC Premiums Should Not Fully Reflect Changes in Underlying Risk (With Some Application to Long-Term Private Insurance Contracts) North American Actuarial Journal Pub Date : 2022-09-30 David McCarthy
The degree of risk adjustment in both FDIC and PBGC premiums appears to be much smaller than actuarially fair. We explore why this is using a stylized theoretical model of multiperiod insurance con...
-
Bayesian Multivariate Mixed Poisson Models with Copula-Based Mixture North American Actuarial Journal Pub Date : 2022-09-30 Pengcheng Zhang, Enrique Calderín-Ojeda, Shuanming Li, Xueyuan Wu
It is common practice to use multivariate count modeling in actuarial literature when dealing with claim counts from insurance policies with multiple covers. One possible way to construct such a model is to implement copula directly on discrete margins. However, likelihood inference under this construction involves the computation of multidimensional rectangle probabilities, which could be computationally
-
Updating Bonus–Malus Indexing Mechanism to Adjust Long-Term Health Insurance Premiums North American Actuarial Journal Pub Date : 2022-09-30 Atefeh Kanani Dizaji, Amir T. Payandeh Najafabadi
Economic shocks, high inflation, longevity, and new emerging technologies make the long-term health care insurance challenging for insurers. To overcome this problem, an indexing mechanism has been employed to update predicted premiums based on the new information in hand. Such indexing mechanisms have thus far failed to consider the available policyholder’s risk experience at its updating time. This
-
A Model Stacking Approach for Forecasting Mortality North American Actuarial Journal Pub Date : 2022-09-22 Jackie Li
This article adopts a machine learning method called stacked generalization for forecasting mortality. The main idea is to combine the forecasts from different projection models or algorithms in a certain way in order to increase the prediction accuracy. In particular, the article considers not just the traditionally used mortality projection models, such as the Lee–Carter and CBD models and their
-
Does Public Health Insurance Expansion Influence Medical Liability Insurance Prices? The Case of the ACA’s Optional Medicaid Expansion North American Actuarial Journal Pub Date : 2022-09-21 Jingshu Luo, Martin F. Grace
Medical liability insurance covers physicians’ liability, and its price could affect physicians’ practice. In this article, we use a unique county-level dataset to study how medical liability insurance prices of three specialties, internal medicine, general surgery, and obstetrics–gynecology (OB-GYN), changed after the Affordable Care Act (ACA) elective Medicaid expansion provision. The Medicaid expansion
-
Extrapolating Long-Run Yield Curves: An Innovative and Consistent Approach North American Actuarial Journal Pub Date : 2022-09-13 Thiago Pedra Signorelli, Carlos Heitor Campani, César da Rocha Neves
This article proposes a method to build term structures that are consistent with market data and that provide interest rates for which the volatility, on average, decreases as maturities increase. The method is designed for continuous repetitive use and is consistent with work by Diebold and Li, providing reasonable extrapolated rates, with an appropriate level of volatility over time. The Svensson
-
Payer-Addressable Burden of Crohn’s Disease in Members Treated with Biologics in the United States: Actuarial Analysis Findings from RAINBOW North American Actuarial Journal Pub Date : 2022-09-09 Sabyasachi Ghosh, Ian Smith, James Davidson, Tao Fan, Ninfa Candela, Cynthia Tsang, Troy Koch, Jason Fehr
Payer-addressable burden (PAB) reflects how real-world disease-associated costs impact the per member per month (PMPM) budget of a health plan, and can help to delineate drivers of PMPM costs and i...
-
Ensemble Economic Scenario Generators: Unity Makes Strength North American Actuarial Journal Pub Date : 2022-08-26 Jean-François Bégin
Over the last 40 years, various frameworks have been proposed to model economic and financial variables relevant to actuaries. These models are helpful, but searching for a unique model that gives optimal forecasting performance can be frustrating and ultimately futile. This study therefore investigates whether we can create better, more reliable economic scenario generators by combining them. We first
-
Mixture Composite Regression Models with Multi-type Feature Selection North American Actuarial Journal Pub Date : 2022-08-22 Tsz Chai Fung, George Tzougas, Mario V. Wüthrich
The aim of this article is to present a mixture composite regression model for claim severity modeling. Claim severity modeling poses several challenges such as multimodality, tail-heaviness, and systematic effects in data. We tackle this modeling problem by studying a mixture composite regression model for simultaneous modeling of attritional and large claims and for considering systematic effects
-
Medicare Advantage, Medical Loss Ratio, Service Efficiency, and Efficiently Positive Health Outcomes North American Actuarial Journal Pub Date : 2022-08-18 Patrick Brockett, Linda Golden, Pengyu Wei, Charles Yang
Within the context of Medicare’s enunciated triple aims of better health, better care, and lower costs, we examine the effectiveness of medical loss ratio (MLR) on health outcomes of Medicare Advantage insurers. We simultaneously examine the effect of an efficiency measure for the insurer performance: medical service utilization efficiency (an assessment of how efficiently an insurer provides medical
-
Price Subsidies and the Demand for Automobile Insurance North American Actuarial Journal Pub Date : 2022-08-11 Boheng Su, Sharon Tennyson
This article tests for regulation-induced adverse selection in the Massachusetts automobile insurance market during the 1990–2004 period of fix-and-establish rate regulation. We demonstrate the application of the test for adverse selection in Finkelstein and Poterba (Journal of Risk and Insurance 81 (4):709–34, 2014) to a regulated insurance market using group-level panel data on purchase amounts and
-
Pay-As-You-Drive Insurance: Modeling and Implications North American Actuarial Journal Pub Date : 2022-08-11 Jiang Cheng, Frank Y. Feng, Xudong Zeng
Pay-as-you-drive (PAYD) insurance is an exciting innovation. We develop a dynamic model to study PAYD insurance from the policyholder’s utility maximization perspective. We demonstrate that PAYD insurance does benefit the policyholder by reducing premium paid and increasing the total utility derived from auto usage and wealth. PAYD insurance may also improve overall social welfare by incentivizing
-
Products and Strategies for the Decumulation of Wealth during Retirement: Insights from the Literature North American Actuarial Journal Pub Date : 2022-08-05 Maximilian Bär, Nadine Gatzert
The question how individuals should (optimally) annuitize their wealth remains of high relevance in light of longevity risk and volatile capital markets. In this article, we first present traditional and innovative products and strategies for the decumulation of wealth during retirement, based on a review of 72 selected academic articles in peer-reviewed journals. We further identify relevant factors
-
A Two-Part Beta Regression Approach for Modeling Surrenders and Withdrawals in a Life Insurance Portfolio North American Actuarial Journal Pub Date : 2022-08-05 Fabio Baione, Davide Biancalana, Paolo De Angelis
Beta regression is a flexible tool in modeling proportions and rates, but is rarely applied in th actuarial field. In this article, we propose its application in the context of policyholder behavior and particularly to model surrenders and withdrawals. Surrender implies the expiration of the contract and denotes the payment of the surrender value, which is contractually defined. Withdrawal does not
-
Discussion on “The Discriminating (Pricing) Actuary,” by Edward W. (Jed) Frees and Fei Huang North American Actuarial Journal Pub Date : 2022-07-27 R. Guy Thomas
Published in North American Actuarial Journal (Vol. 27, No. 1, 2023)