The Casualty Actuarial Society (CAS) has published a new research paper on economic scenario generators, A User’s Guide to Economic Scenario Generation in Property/Casualty Insurance. Authored by Conning, a leading global provider of risk and capital management software and solutions for the investment industry, the paper serves as a basic practitioner’s guide with an emphasis on applications for the property/casualty insurance industry.
An economic scenario generator (ESG) is a computer-based model that provides consistent and plausible simulations of future states of various economic and financial variables. These scenarios, along with the analysis of their stochastic distribution, provide insights into the nature of risk elements within the economy, which can then be used to inform strategic decision-making. The guide outlines the essential features needed for a robust ESG, offers guidance on stochastic processes and the modeling of economic and financial variables, and examines the importance of model calibration and validation. The guide also discusses the development of new ESGs, the sources of economic data, and how models can be validated.
“This paper serves as a basic guide to economic scenario generators, with an emphasis on applications for the property-casualty insurance industry,” said Brian Fannin, ACAS, CSPA, CAS Research Actuary. “Actuaries and other professionals can learn more about financial market model specifications, model calibration, model validation and other essential features of a good ESG.”
“At Conning we spend a lot of time thinking about modeling the economy and financial instruments, so we are very pleased to be able to contribute to the literature in economic scenario generators in this way,” said Dan Finn, Conning’s Head of Risk Solutions in North America. “The use of economic scenarios provides critical insights into the complex and interconnected variables of both the macroeconomy and the global capital markets. They are valuable tools for asset-liability management, capital management, and strategic asset allocation, and so a basic understanding of how they are constructed and used should be a goal of every risk professional.”
The new ESG guide is the latest in a series of CAS Research Papers commissioned to fulfill the CAS mission to advance the body of knowledge within P&C actuarial practice and to give risk management experts access to the relevant information and resources that apply to their work. Conning is also the author of Economic Scenario Generators: A Practical Guide, published by the Society of Actuaries in 2016.
Conning (www.conning.com) is a leading global investment management firm with a long history of serving institutional investors, including insurers, pension plans, and investment managers with investment solutions, asset management offerings, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
About Conning’s Risk Management Software
Conning’s risk management software platform includes GEMS® Economic Scenario Generator, FIRM® Portfolio Analyzer, and ADVISE® Enterprise Risk Modeler, providing insights for decision making, regulatory and rating agency compliance, and capital allocation. ADVISE®, FIRM®, and GEMS® are registered trademarks in the U.S. of Conning, Inc. Copyright 1990-2020 Conning, Inc. All rights reserved. ADVISE®, FIRM®, and GEMS® are proprietary software published and owned by Conning, Inc.
ABOUT THE CASUALTY ACTUARIAL SOCIETY (CAS)
The Casualty Actuarial Society (CAS) is a leading international organization for credentialing and professional education. Founded in 1914, the CAS is the world’s only actuarial organization focused exclusively on property and casualty risks and serves over 9,000 members worldwide. Professionals educated by the CAS empower business and government to make well-informed strategic, financial and operational decisions. Learn more at casact.org.