The 2014 GIROC survey (GIROC UK Reserving Survey 2014) highlighted the wide differences in approaches to measuring and communicating uncertainty in reserves that are currently employed in the UK and identified that this was an area the profession would benefit from focusing on.
The MUQ working party was set up in the wake of this finding and has undertaken work in two stages.
Stage 1 - Bringing together work that has been done before
Stage 1 was carried out in 2015 and focused on reviewing the various qualitative methods already employed. This work has brought together information on current market practice (both in the UK and around the world) and previous research into one place - please see the reference materials section below.
- A01: A Tried and Tested Framework for Reserve Uncertainty - GIRO 2015 - Insight into a reserve uncertainty framework in practice, presented by James Widdows of Chaucer.
- C10: Measuring Uncertainty Beyond Bootstrap - MUQ Working Party Findings
- Reserving Seminar 2015 - A look at how a reserve uncertainty framework has been developed in Australia
- CIGI 2015 - A look at how a reserve uncertainty framework has been developed in Australia.
Stage 2 - Development of a reserve uncertainty framework
Stage 2 commenced in 2016 and used the Stage 1 research to propose ideas for how the measurement of reserve uncertainty could be moved forward in the UK. As a result, the MUQ working party has proposed a framework for assessing uncertainty beyond statistical techniques.
The purpose of this framework is to provide actuaries with a best practice approach for thinking about aspects of uncertainty that are not covered by quantitative factors such as percentiles. This will enable actuaries to take a wider view of uncertainty and identify qualitative issues that may be missed in a purely quantitative approach. It has been developed with a focus on reserving uncertainty, but the principles could be applied to many other areas of actuarial work.
Feedback from members of the profession is encouraged to help develop the framework further. Please send feedback to firstname.lastname@example.org
- GIRO 2018: Workshop A: Reserve Uncertainty Framework: Linking Reserve Risk to Reserving
- Reserving Seminar 2016
- GIRO 2016
- GIRO 2019: C3 Allowing for Qualitative Risk: Reserving and Capital Collide
For further information, including additional reading, resources on individual framework elements and ideas on how to deal with specific elements of uncertainty, please the ‘Reference Materials’ section below.
- Experience from other countries
- Additional resources for framework elements
- Additional useful resources
- A framework for assessing risk margins
- A framework for Estimating Uncertainty in Insurance Claims Costs
- Data uncertainty matrix - The Forest of Brocéliande has a Knowledge Quality Assessment module, which provides an uncertainty matrix. This can serve as a high-level qualitative register for data uncertainties in a model and was used to inform the MUQ framework.
- IAN on data for "CP73" – guidance from the Society of Actuaries in Ireland on questions a Signing Actuary could ask to help form a view on whether data used for providing a Statement of Actuarial Opinion is sufficiently accurate, complete and appropriate.
- S&P GI ERM Rating Criteria – pages 22-25 cover risk controls assessment from a general insurance perspective, where the extent (or level of detail) that this is in place may cause additional (or lower) degree of uncertainty on the reserves.
Language used in communicating uncertainties:
- The Intergovernmental Panel on Climate Change has various types of reports on climate change demonstrating good use of language: IPCC_summary-for-policymakers
- Expert judgement elicitation
- Dr Joseph Lo, Dr Ed Tredger and Bernadette Hlavka discuss the tricks and possible pitfalls when conducting a successful expert judgment elicitation meeting, Article from The Actuary, 2013
- Uncertain factors surrounding expert judgements: Expert Judgement WP, 2015
- Expert judgement process has long been in use in actuarial work, but it has lacked transparency. This paper aims to provide a practical framework regarding expert judgement processes, and how those processes may be validated.
- ‘Ersatz model tests’ – Presented at the 2016 reserving seminar, it looks at ways of testing stochastic models, with an aim to developing deeper understanding of when and why different models are more or less appropriate.
Effectiveness of methods working party
- Methods beyond ‘bootstrap’ - These slides that were presented by the working party at GIRO 2015 contain detailed references to further reading on alternative methods to bootstrap.
- Use of capital models
- 2014 GIROC UK Reserve Survey
- Quantification and reporting of uncertainty for general insurance reserving - Contains suggested standard vocabulary for communicating uncertainty in GI reserving
- A change agenda for reserving. Report of the General Insurance Reserving Issues Taskforce (GRIT) (2006) – recommendations on how actuaries can improve the way in which reserving is done in general insurance.
- 31 May 2018
- 9 November 2017
You might also like
If you want more information about this research working party please contact the Communities Team.
Filter or search events
This year's GIRO has been re-designed as a virtual conference to offer members and non-members the opportunity to get up to date content from leading experts in the general insurance field via online webinars. All sessions will be recorded and made available to purchase and re-watch post-event on the IFoA's GI Online Learning Resource area.
This webinar will provide an update on the emerging thinking around future regulation of DB schemes:
The webinar will discuss the challenges and opportunities schemes face in evaluating end game options, choosing a target state and understanding the impact this strategic decision could have on member outcomes long after the “end state” is reached. Adolfo, Kevin and Rhian bring over 60 years of experience in the industry and a variety of perspectives as scheme actuary, covenant adviser, trustee, de-risking adviser and insurer.
Retail banking is going through a period of substantial change as it moves into the digital age. Banks have large amounts of data about their customers and about their risks. Open data application programming interface (APIs) and data science are enabling banks to use their data to offer innovative and sometimes personalised services. Data science is also adding value in risk areas such as fraud detection and cyber security. At the same time, the move to online banking is making it easier for firms including fintechs to enter banking without having to establish branch networks.
Cash-flow driven investing is a game-changer for DB pension funds navigating their end-game. Suitable for sponsors who want to reduce risks on their balance sheets. And for trustees, it shifts the focus to providing greater certainty of returns, managing funding level volatility and ensuring they have enough income to pay cash-flow requirements.
Patrick Kennedy, Partner at Gateley Legal and Founding Director of Entrust (a leading professional pensions trustee company), will be delivering an update on the latest legal developments during the course of 2020. With both a pensions legal perspective and over 25 years of trustee service, Patrick will seek to highlight how the letter of the law has continued to evolve against the backdrop of a difficult and challenging year
The talk will provide an understanding of the priorities and relationships between deficit reduction contributions, in the context of wider scheme funding, and different types of value outflow from the employer based on the working party’s recently published report.
Covid-19 has required an urgent and cross-practice initiative to facilitate the extensive impact this pandemic has across all industries. IFoA members have been keen to contribute in a different way, so we developed the IFoA Covid-19 Action Taskforce [ICAT] to coordinate our effort, with a more efficient governance.
We have over 500 volunteers and countless topics which we have amalgamated into 93 workstreams.