Management Sciences and Quantitative Methods Commons^™

Communicating Effectively With Words, Numbers, And Pictures: Drawing On Experience, Karolina Duklan, Michael A. Martin

Journal of Actuarial Practice (1993–2006)

In this paper, we discuss techniques for developing effective communication skills, focusing in particular on technical writing, the use of graphics, and presentation. The key principles of effective communication that we propose to actuaries are as follows:

• Identify your audience and consider their needs and abilities;

• Focus on substantive content;

• Choose appropriate communication tools;

• Use language that is simple, concrete, and familiar;

• Integrate text, numbers, and graphics;

• Respond to information complexity creatively.

We focus in particular on the use of graphics as a communications tool as they are an efficient and potentially highly effective …

Further Remarks On Risk Sources Measuring: The Case Of A Life Annuity Portfolio, Mariarosaria Coppola, Emilia Di Lorenzo, Marilena Sibillo

Journal of Actuarial Practice (1993–2006)

The paper considers a model that allows the actuary to measure the riskiness connected to the randomness of projected mortality tables in evaluating a portfolio of life annuities, obtaining a measure to reflect the risk associated with the randomness of the projection. The coherence of the risk parameters with the specific nature of the considered risk sources is also discussed. Numerical examples illustrate the results, showing the importance of the risk components in terms of the number of policies and comparing measure tools obtained by means of two procedures.

A Note On The Parallelogram Method For Computing The On-Level Premium, David P.M. Scollnik, Wai Man Sara Lau

Journal of Actuarial Practice (1993–2006)

This paper discusses the differences appearing in the descriptions of the parallelogram method for the determination of earned premium at current rate levels given by McClenahan (1996) and Brown and Gottlieb (2001). It observes that the former is consistent with the method of extending exposures while the latter is not. An illustration is provided. This paper also discusses two other approaches to the determination of the earned premium.

Dynamic Funding And Investment Strategy For Defined Benefit Pension Schemes: A Model Incorporating Asset-Liability Matching Criteria, Shih-Chieh Chang, Cheng-Hsien Tsai, Chia-Jung Tien, Chang-Ye Tu

Journal of Actuarial Practice (1993–2006)

This paper studies the dynamic funding policy and investment strategy for defined benefit pension plans using one of the most comprehensive dynamic pension models to date. The model includes three investable assets: one risk free and two risky. The optimal plan decisions are formulated as a stochastic control problem that is solved using dynamic programming. The objective function uses performance measures to take into account the stability and solvency of the plan. The model is then applied to a Taiwanese pension.

Impact Of Transformational Leadership On Follower Development And Performance: A Field Experiment, Taly Dvir, Dov Eden, Bruce Avolio, Boas Shamir

Department of Management: Faculty Publications

In a longitudinal, randomized field experiment, we tested the impact of transformational leadership, enhanced hy training, on follower development and performance. Experimental group leaders received transformational leadership training, and control group leaders, eclectic leadership training. The sample included 54 military leaders, their 90 direct followers, and 724 indirect followers. Results indicated the leaders in the experimental group had a more positive impact on direct followers' development and on indirect followers' performance than did the leaders in the control group.

Model Risks And Surplus Management Under A Stochastic Interest Rate Process, Jennifer L. Wang, Rachel J. Huang

Journal of Actuarial Practice (1993–2006)

This paper uses simulations to explore the effects of incorrectly identifying the underlying interest rate process on assets, liabilities, and surplus levels. We show that mismodeling the interest rate (called model risk) could not only lead to a misstatement of the company's surplus, but could also cause a mismatch between the company's assets and liabilities. Our simulations demonstrate that three aspects of interest rates affect model risk: (i) volatility, (ii) level of long-term interest rate, and (iii) the speed at which the drift rate adjusts. We conclude that asset-liability managers should not ignore the impact of the model risks, regardless …

Journal Of Actuarial Practice Volume 10 (2002) -- Contents And Masthead

Journal of Actuarial Practice (1993–2006)

Contents

Editorial Policy: Topics suitable for this journal include AIDS, annuity products, asset-liability matching, cash-flow testing, casualty rate making, credibility theory, credit insurance, disability insurance, expense analysis, experience studies, FASB issues, financial reporting, group insurance, health insurance, individual risk taking, insurance regulations, international issues, investments, liability insurance, loss reserves, marketing, pensions, pricing issues, product development, reinsurance, reserving issues, risk-based capital, risk theory, social insurance, solvency issues, taxation, valuation issues, and workers' compensation

Review Process

Editor - Colin Ramsay, University of Nebraska

Associate Editors: Robert Brown, University of Waterloo ○ Cecil Bykerk, Mutual of Omaha ○ Ruy Cardoso, …

Journal Of Actuarial Practice, Volume 10, 2002, Colin Ramsay , Editor

Journal of Actuarial Practice (1993–2006)

ARTICLES

Communicating Effectively with Words, Numbers, and Pictures: Drawing on Experience • Karolina Duklan and Michael A. Martin

Unearned Premiums and Deferred Policy Acquisition Expenses in Automobile Extended Warranty Insurance • Joseph Cheng

Can Utility Maximization Models Assist With Retirement Planning? • Zaki Khorasanee

Dynamic Funding and Investment Strategy for Defined Benefit Pension Schemes: A Model Incorporating Asset-Liability Matching Criteria • Shih-Chieh Chang, Cheng-Hsien Tsai, Chia-Jung Tien, and Chang- Ye Tu

Model Risk and Surplus Management Under a Stochastic Interest Rate Process •Jennifer L. Wang and Rachel J. Huang

Some Comments on the Pricing of an Exotic Excess of …

Improving Mortality: A Rule Of Thumb And Regulatory Tool, John H. Pollard

Journal of Actuarial Practice (1993–2006)

We develop a simple exact formula for determining cohort life expectancies under constant continuous uniform improvement in mortality using only a cross-sectional (period) Gompertz life table for the lives concerned and a simple approximation applicable to all life tables. The present values of annuities for such lives can be determined simply and accurately across the whole age span.

What A Mess! Participation As A Simple Managerial Rule To “Complexify” Organizations, Donde Ashmos Plowman, Dennis Duchon, Reuben R. Mcdaniel Jr., John W. Huonker

Department of Management: Faculty Publications

This paper adopts a view of organizations as complex adaptive systems and makes a case for making organizations more complex internally through the use of a fairly simple managerial rule—using participative decision making. Participation in decision making enhances connectivity in organizations, which in turn, gives the organization the opportunity to self-organize and co-evolve in more effective ways than when there is minimal connectivity (i.e., autocracy). The paper uses a specific body of research to support the arguments about why participation can benefit the practice of management in modern organizations.

The Need For And Meaning Of Positive Organizational Behavior, Fred Luthans

Department of Management: Faculty Publications

This essay draws from the emerging positive psychology movement and the author’s recent articles on the need for and meaning of a positive approach to organizational behavior. Specifically, the argument is made that at this time, the OB field needs a proactive, positive approach emphasizing strengths, rather than continuing in the downward spiral of negativity trying to fix weaknesses. However, to avoid the surface positivity represented by the non-sustainable best-sellers, the case is made for positive organizational behavior (POB) to take advantage of the OB field’s strength of being theory and research driven. Additional criteria for this version of POB …

Lmx And Subordinate Performance: The Moderating Effects Of Task Characteristics, Kenneth Dunegan, Mary Uhl-Bien, Dennis Duchon

Department of Management: Faculty Publications

Role conflict, role ambiguity, and intrinsic task satisfaction are found to moderate the relationship between leader–member exchange (LMX) and subordinate performance. Data from a field study of 146 supervisor–subordinate dyads indicate low conflict, high ambiguity, and high intrinsic satisfaction enhance the link between LMX and performance. Neutralizing effects are found when ambiguity and intrinsic satisfaction are low. High conflict appears to have a constraining effect, whereby the connection between LMX and performance is reduced but not neutralized. Results from the study call attention to the theoretical and practical benefits of examining the LMX/performance link from a contingency perspective, and offer …

Linear Empirical Bayes Estimation Of Survival Probabilities With Partial Data, Mostafa Mashayekhi

Journal of Actuarial Practice (1993–2006)

In this paper we consider linear empirical Bayes estimation of survival probabilities with partial data from right-censored and possibly left-truncated observations. Such data are produced by studies in which the exact times of death are not recorded and the length of time that each subject may be under observation cannot exceed one unit of time. We obtain asymptotically optimal linear empirical Bayes estimators, with respect to the squared error loss function, under the assumption that the probability of death under observation in a unit time interval is proportional to the length of observation. This assumption is sometimes implied by Balducci's …

Controlling The Solvency Interaction Among A Group Of Insurance Companies, Alexandros Zimbidis, Steven Haberman

Journal of Actuarial Practice (1993–2006)

Pooling of risks is an efficient risk management technique used by large employee benefit schemes of multinational companies to self-insure their retirement and other benefit obligations. This technique forms a basis for formulating a general control theoretic model for the interaction between insurance companies within a pooling network. The objective of these insurance companies is to avoid insolvency yet maintain stable premium and surplus processes. A general control system of equations that is used as a model for the interaction of m insurance companies within the network is first analyzed. An analytic solution is provided. Questions concerning the stability and …

Exponential Bonus-Malus Systems Integrating A Priori Risk Classification, Llufs Bermudez, Michel Denuit, Jan Dhaene

Journal of Actuarial Practice (1993–2006)

This paper examines an integrated ratemaking scheme including a priori risk classification and a posteriori experience rating. In order to avoid the high penalties implied by the quadratic loss function, the symmetry between the overcharges and the undercharges is broken by introducing parametric loss functions of exponential type.

Premium Earning Patterns For Multi-Year Policies With Aggregate Deductibles, Thomas Struppeck

Journal of Actuarial Practice (1993–2006)

MUlti-year policies with large aggregate deductibles or multiple triggers raise some interesting issues about the correct amount of unearned premium reserve that a company should carry. Examples in this paper illustrate some of the difficulties that arise when trying to establish such reserves. The basic approach taken here is that the pure premium portion of the unearned premium reserve should always be adequate to cover the remaining risk. This approach, however, can lead to some unusual and controversial earning patterns; there are even situations where a negative premium is earned. In addition, the earning pattern for a particular loss scenario …

Analyzing Management Fees Of Pension Funds: A Case Study Of Mexico, Tapen Sinha

Journal of Actuarial Practice (1993–2006)

Though the rates of return for public pension funds have been high over the past two decades, one critical aspect of the financing of this type of fund is often overlooked: high management fees. As a result, the rates of return for workers who have invested in these funds have not necessarily been high. Management fees charged on pension funds in Mexico result in a leakage of funds in the order of 20-30% of the fund. That is, the amount at retirement would have been 20-30% higher had there been no fees. A model is developed that includes all the …

Differential Effects Of Incentive Motivators On Work Performance, Alexander D. Stajkovic, Fred Luthans

Department of Management: Faculty Publications

In this field experiment, we first compared the performance effects of money systematically administered through the organizational behavior modification (O.B. Mod.) model and routine pay for performance and then compared the effects of O.B. Mod.- administered money, social recognition, and performance feedback. The money intervention based on the O.B. Mod. outperformed routine pay for performance (performance increase = 37% vs. 11%) and also had stronger effects on performance than social recognition (24%) and performance feedback (20%).

A Sensitivity Analysis Of The Premiums For A Permanent Health Insurance (Phi) Model, Ben D. Rickayzen

Journal of Actuarial Practice (1993–2006)

This paper presents an analysis of the parameters used in a multi-state model for permanent health insurance (PHI). The model is a simplification of that used in the United Kingdom. To avoid using duration dependent probabilities, the model splits the sick state into several sub-states to act as a proxy for duration spent in a particular state. This enables a Markov approach to be adopted. Lapses are incorporated within the model, and the net premium for a particular policy is tested for sensitivity to the various parameters used, including their interaction with the lapse rate. One of our conclusions is …

Fitting Loss Distributions In The Presence Of Rating Variables, Farrokh Guiahi

Journal of Actuarial Practice (1993–2006)

This paper focuses on issues and methodologies for fitting alternative statistical models-parametric probability distributions-to samples of insurance loss data. The interactions of loss distributions, deductibles, policy limits, and rating variables in the context of fitting distributions to losses are discussed. Fitted loss distributions serve an important function in pricing insurance products. The methodology developed in this paper is applied to a sample of insurance loss data that has the lognormal as the underlying loss distribution.

Journal Of Actuarial Practice, Volume 9 (2001), Colin Ramsay , Editor

Journal of Actuarial Practice (1993–2006)

(The complete issue, including) ARTICLES

Analyzing Management Fees of Pension Funds: A Case Study of Mexico • Tapen Sinha 5

Premium Earning Patterns for Multi-Year Policies with Aggregate Deductibles • Thomas Struppeck 45

Exponential Bonus-Malus Systems Integrating A Priori Risk Classification • Lluis Benmidez, Michel Denuit, and Jan Dhaene 67

Fitting Loss Distributions in the Presence of Rating Variables • Farrokh Guiahi 97

Linear Empirical Bayes Estimation of Survival Probabilities with Partial Data • Mostafa Mashayekhi 131

Controlling the Solvency Interaction Among a Group of Insurance Companies • Alexandros Zimbidis and Steven Haberman 151

A Sensitivity Analysis of the Premiums …

Leadership In Complex Organizations, Russ Marion, Mary Uhl-Bien

Department of Management: Faculty Publications

This paper asks how complexity theory informs the role of leadership in organizations. Complexity theory is a science of complexly interacting systems; it explores the nature of interaction and adaptation in such systems and how they influence such things as emergence, innovation, and fitness. We argue that complexity theory focuses leadership efforts on behaviors that enable organizational effectiveness, as opposed to determining or guiding effectiveness. Complexity science broadens conceptualizations of leadership from perspectives that are heavily invested in psychology and social psychology (e.g., human relations models) to include processes for managing dynamic systems and interconnectivity. We develop a definition of …

Leader–Member Exchange And Its Dimensions: Effects Of Self-Effort And Other’S Effort On Relationship Quality, John Maslyn, Mary Uhl-Bien

Department of Management: Faculty Publications

Two hundred thirty-two manager-subordinate dyads provided data on the effort expended toward the development of leader-member exchange (LMX) relationships, how such effort related to expectations about relationship quality, and intentions to exert future effort toward relationship development. For both managers and subordinates, higher quality LMX relationships were reported and expectations were met when the other member of the dyad put forth effort into relationship development. One’s own higher effort coupled with lower effort by the other was associated with a lower quality LMX relationship. Examination of the 4 dimensions of LMX (R. C. Liden & J. M. Maslyn, 1998) revealed …

Journal Of Actuarial Practice, Volume 8, Nos. 1 And 2 (2000) -- Masthead & Contents, Colin Ramsay , Editor

Journal of Actuarial Practice (1993–2006)

Contents

Editorial Policy: Topics suitable for this journal include AIDS, annuity products, asset-liability matching, cash-flow testing, casualty rate making, credibility theory, credit insurance, disability insurance, expense analysis, experience studies, FASB issues, financial reporting, group insurance, health insurance, individual risk taking, insurance regulations, international issues, investments, liability insurance, loss reserves, marketing, pensions, pricing issues, product development, reinsurance, reserving issues, risk-based capital, risk theory, social insurance, solvency issues, taxation, valuation issues, and workers' compensation

Review Process

Editor - Colin Ramsay, University of Nebraska

Associate Editors: Robert Brown, University of Waterloo ○ Cecil Bykerk, Mutual of Omaha ○ Ruy Cardoso, …

Modeling Corporate Bond Default Risk: A Multiple Time Series Approach, Wai-Sum Chan

Journal of Actuarial Practice (1993–2006)

A multiple time series approach is used to forecast the short-term u.s. corporate bond default level. These time series have two auxiliary economic variables: U.S. price inflation and U.S. GNP growth rate. Actual U.S. data from the turn of the century to the present are used to estimate the parameters of multivariate time series model. Diagnostic checks are performed to examine adequacy of the model. The model's forecast for the aggregate U.S. bond default level in 2000-2001 are 0.42% and 0.56%, respectively, while the forecast for the speculative-grade default rate in 2000 is 3.6%, which is more pessimistic than some …

Life Contingencies With Stochastic Discounting Using Moving Average Models, Steven Haberman, Russell Gerrard, Dimitrios Velmachos

Journal of Actuarial Practice (1993–2006)

This paper offers simplified procedures for calculating moments of functions in life contingencies when the random force of interest is modeled using an unconditional moving average process of order q, MA(q). It extends the MA(l) model that has been used for stochastic discounting. Using the more general MA(q) model allows actuaries to better capture the auto correlation between successive interest rates in a time series.

Concentration In The Property And Liability Insurance Market By Line Of Insurance, Edward Nissan, Regina Caveny

Journal of Actuarial Practice (1993–2006)

This paper uses an National Association of Insurance Commissioners (NAIC) 1995 data set to examine the concentration of property and liability insurance by line of insurance in the U.S. The primary measure of concentration used is the Herfindahl index. The largest 100 affiliates are divided into three largest sets of 20, 30, and 50. We find that the homeowners line is the most concentrated line and commercial auto physical damage is the least concentrated line, with the top 20 affiliates commanding the largest between-set and within-set contributions.

Risk Sources In A Life Annuity Portfolio: Decomposition And Measurement Tools, Mariarosaria Coppola, Emilia Di Lorenzo, Marilena Sibillo

Journal of Actuarial Practice (1993–2006)

The paper considers a model for a homogeneous portfolio of whole life annuities immediate. The aim is to study two risk factors: the investment risk and the insurance risk. A stochastic model of the rate of return is used to study these risk factors. Measures of the insurance risk and the investment risk for the entire portfolio are suggested. The problem of the longevity risk is presented, and its consequences with different projections of the mortality tables are analyzed. The model is applied to some concrete cases, and several illustrations show the importance of the two components of the riskiness …

A Comparative Study Of The Performance Of Loss Reserving Methods Through Simulation, Prakash Narayan, Thomas Warthen

Journal of Actuarial Practice (1993–2006)

Actuaries are often asked to provide a range or confidence level for the loss reserve along with a point estimate. Traditional methods of loss reserving do not provide an estimate of the variance of the estimated reserve, and actuaries use various ad hoc methods to derive a range for the indicated reserve. We use a Monte Carlo simulation method to compare various loss reserve estimation methods, including traditional methods and regression-based methods of loss reserving.

Safe-Side Requirements In Life Insurance: A Corporate Perspective, Annamaria Olivieri, Ermanno Pitacco

Journal of Actuarial Practice (1993–2006)

Safe-side requirements concern the assumptions used to calculate premiums in relation to a set of more realistic assumptions. Roughly, safe-side requirements express the capability of premiums to generate positive margins. In a strictly actuarial framework, safe-side requirements are given in terms of some notion of expected profit, calling for assumptions that let such profit be non-negative. An expected profit of zero, however, is not a realistic aim for the insurer. We investigate the notion of conservative assumptions by adopting a unconventional approach. Our focus is the management of the financial resources coming both from premiums and from shareholders' capital. This …