A collaborative seminar between Oasis LMF and Lloyd’s of London
Modern Pricing: Update Your Methodology - Two leading actuaries will look at the history of pricing methodologies and discuss how the latest thinking compares, based on the recent book by Steven Mildenhall and John Major. During this seminar the speakers will consider a range of questions such as: How does cost of capital vary by line? Why do we ignore the variation? How the cost of capital varies by layer of capital (investment grade bonds, junk bonds, equity) and implications by line.
The target audience of this seminar will primarily be pricing actuaries, but may also interest capital actuaries and catastrophe modellers.
Date and time
The Old Library, Lloyd's, 1 Lime Street London EC3M 7HA
13:15 Welcome Remarks
Dickie Whitaker (Chief Executive, OasisLMF)
Kirsten Mitchell-Wallace (Director of Portfolio Risk Management, Lloyd's)
Lisa Chen (Senior Manager, Portfolio Analytics, Lloyd's)
13:30 Part I: Historical Perspective, Steve White
- [Cat] risk pricing through the ages, or at least 1980-2022
- Margin to standard deviation
- Marginal methods: Kreps' and Venter's insights from the 1990s and early 2000s
- Risk adjusted probability methods: Wang's layer pricing, [Black Scholes]
- Approaches seen in the market today
14:00 Part II: Modern Perspective, Stephen Mildenhall
- Adam Smith's very modern insurance pricing formula: losses + expenses + cost of capital
- How does cost of capital vary by line? Why we ignore the variation.
- How the cost of capital varies by layer of capital (investment grade bonds, junk bonds, equity) and implications by line
- Reconciliation of risk adjusted probability and marginal cost methods and explanation of the marginal method "ordering problem"
- Theory in practice: calibration to market comparables using cat bond pricing
- Quantifying the uncertainty in pricing from different risk appetites and its relevance to cat risk pricing [based on cat bond pricing and a realistic example]
- The practitioner's dilemma layers uncertainty upon uncertainty: applying incompletely specified pricing rules to uncertain cat model output
- Uncertainty about the mean and its implications
- Uncertainty about the distributions and its implications
- Take aways
15:30 Coffee Break
16:00-17:00 Part III: Panel Discussion
Chaired by Paul Shedden, Global Head of Analytics, Aon Reinsurance Solutions
- Bernadette Tredger (Head of Portfolio Management, Apollo Underwriting)
- Cian Creedon (Reinsurance Pricing Actuary, MS Amlin)
- Emma Montague (Head of Pricing, Chaucer)
- Steve White (Partner, McGill & Partners)
- Stephen Midenhall (Head of Analytics, Qualrisk Ltd)
- In theory, there's a great way to price that academics agree we should all use, however, in practice it does not quite work....learn why.
- Understand why marginal methods depend on the order business is written.
- Embrace uncertainty, learn how to compute a range of by-unit prices consistent with an overall (investor-driven) return goal.
- See that the pricing uncertainty straddles the range of market prices for cat risk...partly explaining the stress in the market today.
- Learn how to incorporate uncertain loss estimates and differentiate between bias and parameter uncertainty and estimate the impact of each.
About the speakers:
Steven has nearly 30 years of experience as an actuary working in property and casualty (non-life) reinsurance. Steven started as a Pricing Actuary for Allstate Re/SCOR developing pricing models and pricing reinsurance treaties. Steven’s next position was as the Business Unit Actuary for Swiss Re in the Midwest region and later in the Western region.
Steven spent over 20 years with Guy Carpenter where he supported an International Broking team based out of NYC. While there, he worked closely with Gary Ventor, Rodney Kreps and Don Mango. Steven was the Global Chief Actuary for the last 12 years, supporting some of the largest clients and overseeing the technical tool development. Following a brief retirement, Steven joined McGill and Partners at the end of 2021 to help build out the analytical capabilities of this dynamic and rapidly growing firm.
Dr. Stephen Mildenhall
Dr. Mildenhall is the Head of Analytics at QualRisk Ltd. Previoulsy he was Global CEO of Analytics for Aon and head of Aon Benfield Analytics where he helped found and establish Aon’s Singapore Center for Innovation and Analytics and led a team of over 500 professionals in actuarial science, catastrophe modelling, accounting and financial modelling. Prior to Aon, he was vice president of Actuarial Pricing for Kemper Insurance and began his career at CNA.
Dr. Mildenhall is a frequent speaker and published author on risk theory, the intersection of insurance and finance, and the application of probability and statistics to reserving and rate making problems. He is a fellow and former Board and Audit Committee member of Casualty Actuarial Society (CAS), a board member of the CAS Institute, an associate of the Society of Actuaries, and a member of the Risk Theory Society. Dr Mildenhall served on the ARIA Board of Directors from 2013-2016 and was a member of the CAS Committee on the Theory of Risk and its chairman from 2008-2010.
Dr Mildenhall holds a BSc. in Mathematics from the University of Warwick, and a MA and Ph.D. in Mathematics from the University of Chicago. He is a Chartered Enterprise Risk Analyst, Certified Specialist in Predictive Analytics, and a Catastrophe Risk Management Professional.