Oct 26, 2013

Global Country Perspective

Do you find it - just like me - hard to get a clear picture of a country's impact and contribution from global perspective? Here's some help...

The Global Competitiveness Index (GCI) is a comprehensive tool that measures the microeconomic and macroeconomic foundations of national competitiveness. It is composed of 12 "pillars", or categories.

Competitiveness is the set of institutions, factors and policies that determine the level of productivity of a country taking into account its level of development.

With the help of the free Tableau (visual) software I've created several charts that give an rough idea of a country's competitiveness an productivity in relation with it's relative global size (% of total world GDP).

The last rectangle chart 'Country GDP world Share' shows in a scaled way the GDP proportions of all 148 measured countries in the world. The color of each rectangle represents the GCI-level of each country (dark red=poor, dark green = splendid).

If you look specifically for the Netherlands in the first chart.... Click (or double click) on the word 'Netherlands'. In general, move you mouse across the different circles and rectangles to view more detailed information.


The Global Competitiveness Report 2013-2014
Base period 2013-2014

Oct 22, 2013

Test: Rational Thinking in a Crisis

End October 2007 my wife and I were flying from New York to San Diego. Due to an overheated engine our Captain took the one and only right decision: an emergency landing (at Chicago). Thankfully, a successful emergency landing.

Although - for a split second - we were disappointed that we would not arrive at San Diego that night, we immediately realized that our goal was no longer arriving at time, but surviving!

 How do we respond in crises situations? Take the next simple test to find out.

Original Source: Risk & Return

Oct 19, 2013

Estimating Bubbles

In a presentation for more than 200 actuaries at 'Actuarieel Podium" (actuarial Platform) on October 2 (2013) (Actuary Day) in the Netherlands, I tested the ability of Dutch actuaries to estimate the number of bubbles in a bottle of champagne.

Take the Test

Test your own bubble estimation ability. Think for a while:

How many bubbles are in a bottle of Champagne?

If you think you've got the right answer, check it by clicking on the picture below...

If the order of magnitude of your answer was right: Congratulations!
If not, like most actuaries at my presentation, one thing is clear:

As actuaries we fall short in estimating bubbles!!!! (crises)

Key question is: why can't we estimate bubbles?

Short answer: because we have been only professionally trained in estimating relatively small numbers and small risks, not (systemic) crises.

One thing is sure: we need to fix this educational bubble-lack in our professional actuarial training.

- Beekman Wines: Champagne - How Many Bubbles?
Application of Actuarial Science to Systemic Risk Report (2013)
- Actuarial Viewpoints on and Roles in Systemic Risk Regulation
- Actuarieel Podium (Dutch)

49 Million Bubbles in a bottle of champagne may seem much, it's nothing compared to the U.S. Debt:

Learn more (in Dutch) on how we can do better as actuaries in the next presentation: 'From Backroom to Boardroom' (in Dutch) by Jos Berkemeijer

Oct 9, 2013

7 Principles of an Effective Capital Adequacy Process

The Federal Reserve Bank not only fights inflation, but also unmanaged risk and  systemic risk.

Recently the FED  announced seven new Capital Adequacy Process (CAP) Principles for complex bank holding companies (BHCs).

Although these principles only intend to effect BHC's with a consolidated assets of $50 billion or more, they are in fact a simple and adequate guideline for any Financial Institution (FI) that takes risk management and its stakeholders seriously.

The new principles emphasize that managers, risk managers and actuaries not only have to focus on technical risk, but also on the implementation of a sound risk framework, including an effective risk control and a transparent risk governance.

Here are the Seven Principles of an Effective Capital Adequacy Process:

  1. Sound foundational risk management
    The FI has a sound risk-measurement and risk-management infrastructure that supports the identification, measurement, assessment, and control of all material risks arising from its exposures and business activities.
  2. Effective loss-estimation methodologies
    The FI has effective processes for translating risk measures into estimates of potential losses over a range of stressful scenarios and environments and for aggregating those estimated losses across the FI.
  3. Solid resource-estimation methodologies
    The FI has a clear definition of available capital resources and an effective process for estimating available capital resources (including any projected revenues) over the same range of stressful scenarios and environments used for estimating losses.
  4. Sufficient capital adequacy impact assessment
    The FI has processes for bringing together estimates of losses and capital resources to assess the combined impact on capital adequacy in relation to the FI's stated goals for the level and composition of capital.
  5. Comprehensive capital policy and capital planning
    The FI has a comprehensive capital policy and robust capital planning practices for establishing capital goals, determining appropriate capital levels and composition of capital, making decisions about capital actions, and maintaining capital contingency plans.
  6. Robust internal controls
    The FI has robust internal controls governing capital adequacy process components, including policies and procedures; change control; model validation and independent review; comprehensive documentation; and review by internal audit.
  7. Effective governance
    The FI has effective board and senior management oversight of the CAP, including periodic review of the FI's risk infrastructure and loss- and resource-estimation methodologies; evaluation of capital goals; assessment of the appropriateness of stressful scenarios considered; regular review of any limitations and uncertainties in all aspects of the CAP; and approval of capital decisions.

ORSA for European Insurers
A lot of the above mentioned principles are embedded in the 'Own Risk and Solvency Assessment' (ORSA) for European Insurers  as part of Solvency II regulation:

Implementing ORSA
It's our dedicated mission as actuaries to guide management on the implementation of ORSA or any other risk implementation program. And yes... it won't be easy.....

Links & Sources