Applying Smart Beta in Alternative Markets

1. If you construct a value fund with small stocks that kicks out initial public offerings, bankruptcies and small companies that aren’t profitable, the screening of those duds is smart beta.

2. The typical S&P 500 index fund owns all 500 stocks in the index but doesn’t invest an equal amount in each. Traditional index fund weights are determined by market capitalization. However Smart-beta indexes tilt toward value stocks that perform well over time.

3. Smart-beta ETFs are rules-based. The rules are established in advance. Using the PowerShares S&P 500 ETF (SPLV) as an example, the fund takes the 100 least volatile stocks in the broader S&P 500 index, and then every three months it rebalances by selling what no longer fits its rules-based criteria and buys what does fit. 

Automotive Hubs in ASEAN

 As the automotive industry grapples with the fundamental changes in their business models. One thing remains constant: they will need to build the vehicles. They will need to build lots of them. They will need razor-sharp supply chains, economies of scale and supportive state structures. All of this indicates a strong likelihood that automotive ‘hubs’ will continue to play a major role in ASEAN's vehicle production.

Testing and Monitoring Risk Margin

1. A stochastic risk margin will be based on a stochastic model capable of predicting the probability distribution of the total outstanding claims, as the 75th percentile must be estimated.

2. The amount of comfort this gives us about the risk margin will depend on how much of the outstanding claims relates to payments to be made in the next transaction period and how confident we are about the payment pattern. 

3. Some of the more common stochastic models used for assessing risk margins are:

(i) Chain ladder bootstrap

(ii) Other non-parametric bootstraps based on different models

(iii) Mack’s model

(iv) Generalised linear models

(V) Adaptive generalised linear models

Practical Considerations for IBNR Issues

1. Excess or shock claims, especially their timing, number and amount, are  examples of real world disruptions to a health actuary’s IBNR calculations. There are other outside Influences on Health Claim Reserves and Patterns

2. Shock claims have a material impact on completion factors produced by development IBNR calculation methods. Often the adjudication time for these excess claims is longer; thus, when they are paid, they can lower all paid lag month’s completion factors, raising the overall claim reserve produced. 

3. By incorporating the excess claim’s impact (e.g., lower completion factors), one is essentially providing an ongoing reserve for a similarly expected excess claim. Alternatively, in the rare case that the large excess claim is paid much faster than other claims, the resulting completion factors will be increased, thus lowering reserves, a likely unwanted result.

Comparing IBNR Methods

There are five basic types of approaches to calculate claim reserves. These types are:
(i) Tabular methods

(ii) Case reserve methods

(iii) Projection methods

(iv) Loss ratio methods

(v) Development methods 

Risk Margin Types, Applications, Pricing and Application in Accounting

1. The term risk margin is commonly used in the observation that stating the loss reserve at nominal (rather than discounted) values provides an implicit risk margin. It is clear that the amount of the risk margin in this circumstance is the difference between undiscounted and discounted reserves.

Plastic Packaging Economics and Supply Chain

1. In 2013, the industry put 78 million tonnes of plastic packaging on the market, with a total value of $260 billion.Plastic packaging volumes are expected to continue their strong growth, doubling within 15 years and more than quadrupling by 2050, to 318 million tonnes annually – more than the entire plastics industry today.  2. As packaging materials, plastics are especially inexpensive, lightweight and high performing. Plastic packaging can also benefit the environment: its low weight reduces fuel consumption in transportation, and its barrier properties keep food fresh longer, reducing food waste.  The main plastic resin types and their packaging applications are as follows:

Solar PV Inverters Efficiency Analysis and Industry Forecasts

1. The job of an inverter is to invert – it takes DC (Direct Current) and converts it into AC (Alternating Current) so that it can  run on electrical equipment designed to run on AC.

UPR and Estimation of URR

1. Unearned Premium Reserve (UPR) is that portion of premium which is not earned by the insurer. The insurer has to maintain a premium reserve for this unearned period to meet their ongoing obligation to the policy holder. It is normal for insurer to use the 1/24th method for Non-Marine classes and for Marine, it is a norm to provide on basis of 25% of total net (of reinsurance) premium as unearned as at the end of each financial year. 

2.  Unexpired risk reserve (URR) works somewhat similarly like UPR. However for URR an actuary will be called to assess the development of losses with reference to time factor. The insurer needs to maintain an extra level of reserve (usually in the form of PROVISION FOR PREMIUM DEFICIENCY) if the appointed actuary deemed that the specified ‘unearned premium reserve’ level is not sufficient to meet its ongoing or future obligations.

Reinsurance Basics - Part 3 - Quota Share and Unearned Revenue

1. As a financing mechanism, a quota share treaty is very important to provide surplus relief

2. The more surplus (assets minus liabilities) a company has to “back up” its premium writings, the more financially stable that company will be.

3.Regulators focus on insurer solvency and apply what is known as “statutory accounting principles” which are very conservative. 

Reinsurance Basics - Part 2 - Pro Rata Quota/Surplus Share and XOL Treaties

1. As described earlier, pro rata, also called “proportional,” is a form of reinsurance in which the reinsurer shares a proportional part of the original losses and premiums of the ceding company. Pro rata forms are often used in property insurance, since this form provides catastrophic protection in addition to individual risk capacity

2. There are two distinct types of pro rata reinsurance - quota share and surplus share.

Reinsurance Basics - Part 1 - Fac/Treaty and Pro Rata/XOL

The purpose of reinsurance is to spread risk. This post provides a simple overview for those new to the industry.

Extending Falling Mortality Rates

1. It is a natural law that the historic longevity trend will continue into the future. 

2. Every stochastic mortality forecast model extrapolates the observed evolution of falling mortality rates.

3. What does it take to continue this trend? 

Understanding and Managing Anti Selection

One of the greatest threats facing life insurers is anti-selection (also called adverse selection or negative selection). Anti-selection occurs when an underwriting information deficit allows a higher-risk group (such as smokers) to purchase life or health insurance at the same price a lower-risk group (non-smokers)

Surety Insurance - Pricing, Reserving and Frameworks

1. Surety is a promise by a surety (the obligor or insurer) to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract.

2. They’re mistaken for insurance because they often involve payment when things don’t go as planned.

Automating the Supply Chain with Robotics

1. Process robotics works by automating the entire supply chain from end to end—not just individual tasks—enabling all different sections to be managed in tandem. 

2. The adoption of software robotics allows professionals to focus less time on day-to-day processes and, instead, provides more time to drive value for the entire business.

Strategic/Smart Beta in Investing

1. beta is a measure of a security's or portfolio's volatility in comparison to the stock market as a whole.

2. "beta" is also used as shorthand to describe getting broad stock-market exposure, typically through investments that often track the S&P 500 and other major indexes.

3. Smart beta strategies occupy a middle ground between passive and active investment approaches. Smart beta funds are similar to passive index funds in their use of a systematic, rules-based framework to create portfolios. Smart beta strategies deviate from traditional index funds by emphasizing factors that may enhance returns relative to capitalization-weighted indexes.

Passive Investing for Asset Management

1. A passive fund is composed to track its benchmark (for example a large-cap fund might be benchmarked against the S&P 500 index) without making any deviations or analytical bets. 

2. mutual fund industry seems to have realized that they face an existential threat not just to their growth but to their very existence, and many of them are responding by cutting fees and offering passive investment choices.

Active Fund Managers In a Negative market

1. Index funds will tend to underperform active managers in strongly positive and strongly negative markets.

2. The argument is based on the premise that active managers can position their portfolios to benefit from the prevailing conditions.

[Misconduct] FCA Probes Risk of Fund Manager Failures

1. In April The Financial Conduct Authority investigated how the financial system would cope in the event of a fund manager failure. 

2. The regulator is concerned that a 'disorderly failure' of investment managers and/or their portfolios could disrupt the financial system.

3. The regulator examined the design of investment products, probing investment managers' oversight of investors' portfolio oversight and questioning some of the motives behind the launch of new funds.