The determinants of integrating policy-based and community-based adaptation into coastal hazard risk management: a resilience approach

Abstract

A growing number of studies focus on improving the understanding of how the households’ adaptations can be encouraged in the process of coastal hazards and risk management. Particularly, this process is undergoing a major paradigm shift as it moves from an approach dominated by policy-based adaptation to another one in which community-based resilience building is favored. Thus, this article aims to apply a resilience approach to improve the knowledge about how public measures influence private autonomous adaptation behavior, through a transdisciplinary investigation of household adaptation behavior and its determinants. The Resilience Framework of Household Autonomous Adaptation to Climate- and Weather-Related Hazard Risks (ROHACHR) is proposed and combined with a focus group meeting and multivariate analysis to compare pre-disaster, during a disaster, post-disaster adaptations, and resilience behavior of households. Using an empirical survey of the households in three coastal municipalities in Taiwan, we examine the relationships between public measures and private adaptations that provides three distinguishing types of household behavior: ‘core’, ‘trust in governmental aid’, and ‘awareness and structures’. Results show that providing hazard risk information may be one step toward encouraging private autonomous adaptations. Several factors that help foster resilience also appear to be influential in households’ adaptation decisions, such as specific and positive governmental aid, information trust, and social capital. Based on these results, it shows that the ROHACHR is useful to characterize households’ adaptation and resilience behavior and explain how they respond to public measures. Finally, the policy implications of our findings for improving resilience of coastal communities and encouraging public-private collaboration in the process of hazard risk management are discussed.     

A practical road map for assessing cyber risk

The increase in interconnectivity and developments in technology have caused cyber security to become a universal concern. This paper highlights the dangers of the evolution of cyber risk, the challenges of quantifying the impact of cyber-attacks and the feasibility of the traditional actuarial methodologies for quantifying cyber losses. In this paper, we present a practical roadmap for assessing cyber risk, a roadmap that emphasizes the importance of developing a company and culture-specific risk and resilience model. We develop a structure for a Bayesian network to model the financial loss as a function of the key drivers of risk and resilience. We use qualitative scorecard assessment to determine the level of cyber risk exposure and evaluate the effectiveness of resilience efforts in the organization. We highlight the importance of capitalizing on the knowledge of experts within the organization and discuss methods for aggregating multiple assessments. From an enterprise risk management perspective, impact on value should be the primary concern of managers. This paper uses a value-centric/reputational approach to risk management rather than a regulatory/capital-centric approach to risk.     

A multilevel framework to enhance organizational resilience

Abstract

Organizational resilience is a capacity that emerges at multiple levels. Although the multilevel character of organizations has been generally acknowledged in existing organizational studies, there is a lack of theoretical and empirical studies that address how it affects organizational resilience. To adress this gap, this article offers a multilevel framework applicable to enhance organizational resilience and presents an empirical study to probe the impact of multilevel elements on organization's capacity for responding to critical situations. More specifically, the new framework will help an organization to enhance its resilience through a process of self-assessment on crisis preparedness and response capacity. This process will allow the organization to identify and remedy potential vulnerabilities in the interaction between its organs as well as environment. We argue that crisis management and organizational resilience are mutually shaped across multiple levels, from individual, organizational, to environmental. These multiple levels are operationalized operationalization in four phases: (1) reviewing and monitoring context, (2) testing preparedness, (3) analysing and assessing responses, and (4) strengthening capabilities. In these phases, we underline that resilience management requires continuous embracing of the dynamic processes within an organizational system and its environment. To validate the framework, we present an empirical study on a security organization, and describe the results to demonstrate how to utilise the tool in practice. In conclusion, we discuss how the multilevel framework can be further applied towards building stronger resilience management.     

The mortality among industrial insured lives in Norway 1931–1940

Abstract

Industrial insurance was introduced in Norway in 1903 by The Norwegian Life Insurance Company FRAM which was alone in this branch of life insurance activity until 1918, when The Life Insurance Company Norske Folk adopted industrial insurance also. Later on other companies too have started industrial insurance, but Fram is still by far the largest industrial insurance company in Norway, and to-day works with industrial insurance with weekly, monthly and daily premiums (calendarpremium).     

China’s Antitrust Policy: Recent Developments and Decision Patterns

Abstract:

In this paper, we review recent antitrust policy developments in China. First, we use a sample of all merger cases reviewed by the Ministry of Commerce (MOFCOM) from August 2008 to September 2012 to provide an econometric analysis of merger review patterns. We find that MOFCOM tends to impose restrictions on mergers involving large corporations and does not distinguish between horizontal mergers and vertical and conglomerate mergers. In addition, European firms and U.S. firms face higher chances of restrictions than do firms from other countries. Finally, we provide a qualitative analysis of the investigations against price agreements.     

Financial and Demographic Risks of a Portfolio of Life Insurance Policies with Stochastic Interest Rates

Abstract

We refer to a recent paper by G. Parker (1997) in which the risk of a portfolio of life insurance policies (namely the risk related to the entire contractual life) is studied by separating the demographic component from the financial component. In our paper, after making a brief summary of Parker’s model, we propose two additional contributions: 1. We first give the problem a different formalization, thus allowing a portfolio risk analysis by management periods and a study of the risk due to the interactions among years;

2. We elaborate on a powerful and flexible algorithm for calculating the probability distribution of the sum of random variables that proves useful to solve not only the problems discussed in this paper concerning the risk analysis but also various other problems.

In the paper, we also show, for both contributions, some applications made under the same financial and demographic assumptions taken by Parker; we also compare our results with Parker’s results.     

Domain-independent approach to risk reduction

Abstract

The popular domain-specific approach to risk reduction created the illusion that efficient risk reduction can be delivered successfully solely by using methods offered by the specific domain. As a result, many industries have been deprived of efficient risk reducing strategy and solutions. This paper argues that risk reduction is underlined by domain-independent methods and principles which, combined with knowledge from the specific domain, help to generate effective risk reduction solutions. In this respect, the paper introduces a powerful method for reducing the likelihood of computational errors based on combining the domain-independent method of segmentation and local knowledge of the chain rule for differentiation. The paper also demonstrates that lack of knowledge of domain-independent principles for risk reduction misses opportunities to reduce the risk of failure even in a mature field like stress analysis. The domain-independent methods for risk reduction do not rely on reliability data or knowledge of physical mechanisms underlying possible failure modes and are particularly well suited for developing new designs, with unknown failure mechanisms and failure history. In many cases, the reliability improvement and risk reduction by using the domain-independent methods reduces risk at no extra cost or at a relatively small cost. The presented domain-independent methods work across unrelated domains and this is demonstrated by the supplied examples which range from various areas of engineering and technology, computer science, project management, health risk management, business and mathematics. The domain-independent risk reduction methods presented in this paper promote building products and systems characterised by high-reliability and resilience.     

Pseudo resilient supply chains: concept,traits, and practices

Supply chain vulnerability (SCV) and its counterpart supply risk management are increasingly researched in recent years. SCV is often quantifiable and can be effectively monitored if practices are implemented on a systematic basis. It is essentially more important to extend the research in supply chain risk management so as to address certain traits where the companies perform poor or areas where they overlook their performances. Here, we introduce the concept and property, the so-called pseudo resilience in supply chains where supply chains pretend to perform better in its risk management capabilities, but are essentially vulnerable. Pseudo resilience is an incessant nature of many supply chains to overlook concomitant risks. Typical traits of pseudo resilience were identified in this research and a brief analysis of the disruptions and its effects was done. This research is a maiden effort in the direction of addressing the property of pseudo resilience in supply chains. It is imperative for managers to identify the traits of pseudo resilience in their supply chains so as to avoid the ill effects resulting from it. Further quantitative and qualitative researches are recommended for evincing the property of pseudo resilience in supply chains.     

Factor-based,Non-parametric Risk Measurement Framework for Hedge Funds and Fund-of-Funds

Abstract

A factor-decomposition based framework is presented that facilitates non-parametric risk analysis for complex hedge fund portfolios in the absence of portfolio level transparency. This approach has been designed specifically for use within the hedge fund-of-funds environment, but is equally relevant to those who seek to construct risk-managed portfolios of hedge funds under less than perfect underlying portfolio transparency. Using dynamic multivariate regression analysis coupled with a qualitative understanding of hedge fund return drivers, one is able to perform a robust factor decomposition to attribute risk within any hedge fund portfolio with an identifiable strategy. Furthermore, through use of Monte Carlo simulation techniques, these factors can be employed to generate implied risk profiles at either the constituent fund or aggregate fund-of-funds level. As well as being pertinent to risk forecasting and monitoring, such methods also have application to style analysis, profit attribution, portfolio stress testing and diversification studies. This paper outlines such a framework and presents sample results in each of these areas.     

Authors’ Reply: Credit Standing and the Fair Value of Liabilities: A Critique - Discussion by Marsha Wallace

Abstract

As investment plays an increasingly important role in the insurance business, ruin analysis in the presence of stochastic interest (or stochastic return on investments) has become a key issue in modern risk theory, and the related results should be of interest to actuaries. Although the study of insurance risk models with stochastic interest has attracted a fair amount of attention in recent years, many significant ruin problems associated with these models remain to be investigated. In this paper we consider a risk process with stochastic interest in which the basic risk process is the classical risk process and the stochastic interest process (or the stochastic return-on-investmentgenerating process) is a compound Poisson process with positive drift. Within this framework, we first derive an integro-differential equation for the Gerber-Shiu expected discounted penalty function, and then obtain an exact solution to the equation. We also obtain closed-form expressions for the expected discounted penalty function in some special cases. Finally, we examine a lower bound for the ruin probability of the risk process.     

Optimal and Simple,Nearly Optimal Rules for Minimizing the Probability Of Financial Ruin in Retirement

Abstract

The increasing risk of poverty in retirement has been well documented; it is projected that current and future retirees’ living expenses will significantly exceed their savings and income. In this paper, we consider a retiree who does not have sufficient wealth and income to fund her future expenses, and we seek the asset allocation that minimizes the probability of financial ruin during her lifetime. Building on the work of Young (2004) and Milevsky, Moore, and Young (2006), under general mortality assumptions, we derive a variational inequality that governs the ruin probability and optimal asset allocation. We explore the qualitative properties of the ruin robability and optimal strategy, present a numerical method for their estimation, and examine their sensitivity to changes in model parameters for specific examples. We then present an easy-to-implement allocation rule and demonstrate via simulation that it yields nearly optimal ruin probability, even under discrete portfolio rebalancing.     

The Value Relevance of Risk Disclosure: An Analysis of the Banking Sector

Abstract

The aim of this study is to test whether financial risk disclosures required by IFRS 7 and Pillar 3 are value relevant for investors to support them in their investment decisions. The sample in the study consists of banks listed on the London, Paris, Frankfurt, Madrid, and Milan Stock Exchanges over an 8-year period, from 2007 to 2014. Based on the aforementioned standards, we built financial risk disclosure indexes and distinguished different risk categories, qualitative and quantitative, as well as credit, liquidity, and market risk. Our analyses confirm that there is a positive association between bank value and several categories of established risk disclosures. Furthermore, it suggests that disclosure adds value to more traditional risk value measures. Besides, our results suggest that investors pay attention to the strength of the bank authority when using risk disclosures.     

Sociology,risk and the environment: a material-semiotic approach

Abstract

Sociology has made significant contributions to the conceptualisation of risk and critique of technical risk analysis. It has, however, unintentionally reinforced the division of labour between the natural/technical and social sciences in risk analysis. This paper argues that the problem with conceptualisations of risk is not a misplaced emphasis on calculation. Rather, it is that we have not adequately dealt with ontological distinctions implicit in both sociological and technical work on risk between material or objective risks and our socially mediated understandings and interpretations of those risks. While acknowledging that risks are simultaneously social and technical, sociologists have not, in practice, provided the conceptual and methodological tools to apprehend risk in a less dualistic manner. This limits our ability both to analyse actors and processes outside the social domain and to explore the recursive relationships between risk calculus, social action and the material outcomes of risk. In response, this paper develops a material-semiotic conceptualisation of risk and provides an assessment of its relevance to more sociologically informed risk governance. It introduces the ideas of co-constitution, emergent entities and enactment as instruments for reconciling the material and social worlds in a sociological study of risk. It further illustrates the application of a material-semiotic approach using these concepts in the nuclear industry. In deconstructing social–material dualisms in the sociology of risk, this paper argues that a material-semiotic conceptualisation of risk enables both technical and social perspectives on risk not only to coexist but to collaborate, widening the scope for interdisciplinary research.     

Utilitarianism and risk

Abstract

In day-to-day life, we are continuously exposed to different kinds of risk. Unfortunately, avoiding risk can often come at societal or individual costs. Hence, an important task within risk management is deciding how much it can be justified to expose members of society to risk x in order to avoid societal and individual costs y – and vice versa. We can refer to this as the task of setting an acceptable risk threshold. Judging whether a risk threshold is justified requires normative reasoning about what levels of risk exposure that are permissible. One such prominent normative theory is utilitarianism. According to utilitarians, the preferred risk threshold is the one that yields more utility for the most people compared to alternative risk thresholds. In this paper, I investigate whether and the extent to which utilitarian theory can be used to normatively ground a particular risk threshold in this way. In particular, I argue that there are (at least) seven different utilitarian approaches to setting an acceptable risk threshold. I discuss each of these approaches in turn and argue that neither can satisfactorily ground an acceptable risk threshold.     

An Out-of-Sample Analysis of Investment Guarantees for Equity-Linked Products

Abstract

In this paper we analyze the risk underlying investment guarantees using 78 different econometric models: GARCH, regime-switching, mixtures, and combinations of these approaches. This extensive set of models is compared with returns observed during the financial crisis in an out-of-sample analysis, bringing a new perspective to the study of equity-linked insurance. We find that despite the very good fit of recent models, too few of them are capable of consistently generating low returns over long periods, which were in fact observed empirically during the financial crisis. Moreover, tail risk measures vary significantly across models, and this emphasizes the importance of model risk. Most insurance companies are now focusing on dynamically hedging their investment guarantees, and so we also investigate the robustness of the Black-Scholes delta hedging strategy. We find that hedging errors can be very large among the top fitting models, implying that model risk must be taken into consideration when hedging investment guarantees.     

Comparative and qualitative robustness for law-invariant risk measures

When estimating the risk of a P&L from historical data or Monte Carlo simulation, the robustness of the estimate is important. We argue here that Hampel’s classical notion of qualitative robustness is not suitable for risk measurement, and we propose and analyze a refined notion of robustness that applies to tail-dependent law-invariant convex risk measures on Orlicz spaces. This concept captures the tradeoff between robustness and sensitivity and can be quantified by an index of qualitative robustness. By means of this index, we can compare various risk measures, such as distortion risk measures, in regard to their degree of robustness. Our analysis also yields results of independent interest such as continuity properties and consistency of estimators for risk measures, or a Skorohod representation theorem for ψ-weak convergence.     

The Iterated Cte

Abstract

In this paper we present a method for defining a dynamic risk measure from a static risk measure, by backwards iteration. We apply the method to the conditional tail expectation (CTE) risk measure to construct a new, dynamic risk measure, the iterated CTE (ICTE). We show that the ICTE is coherent, consistent, and relevant according to the definitions of Riedel (2003), and we derive formulae for the ICTE for the case where the loss process is lognormal. Finally, we demonstrate the practical implementation of the ICTE to an equity-linked insurance contract with maturity and death benefit guarantees.     

Intrinsic objective Bayesian estimation of the mean of the Tweedie family

ABSTRACT

The Tweedie family, which is classified by the choice of power unit variance function, includes heavy tailed distributions, and as such could be of significant relevance to actuarial science. The class includes the Normal, Poisson, Gamma, Inverse Gaussian, Stable and Compound Poisson distributions. In this study, we explore the intrinsic objective Bayesian point estimator for the mean value of the Tweedie family based on the intrinsic discrepancy loss function – which is an inherent loss function arising only from the underlying distribution or model, without any subjective considerations – and the Jeffreys prior distribution, which is designed to express absence of information about the quantity of interest. We compare the proposed point estimator with the Bayes estimator, which is the posterior mean based on quadratic loss function and the Jeffreys prior distribution. We carry a numerical study to illustrate the methodology in the context of the Inverse Gaussian model, which is fully unexplored in this novel context, and which is useful to insurance contracts.     

Fair Valuation of Equity-Linked Policies under Insurer Default Risk

Abstract

We consider the problem of computing the fair value of equity-linked policies with an interestrate guarantee when the insurer is subject to credit risk. The framework is developed based on modern financial theory using the no-arbitrage principle. In this context, an equity-linked policy is considered as a vulnerable contingent claim that expires before maturity if the firm asset value reaches a prespecified default threshold depending on the firm’s liabilities. We derive a closedform formula in a continuous-time environment to compute the fair value of the contract. We also develop a discrete-time model that allows us to address fair evaluation when the policy embeds a surrender option.     

Actuarial concepts in the theory of financing life insurance activities

Abstract

In this paper is presented an attempt by the author to obtain conceptual clarity in the actuarial considerations concerned with financing life insurance schemes, whether private or public, It will, of course, be realized that the author is concerned ultimately with the financing of public or semi-public schemes. However, it is with deliberate intention that the exposition is presented in general terms. As is often the case, abstraction means clarification, thus avoiding a shifting of the meaning of the concepts as one goes from one special situation to another.