Tuesday, June 07, 2011

Social media redux

I'm certain that by now, everyone knows about Congressman Anthony Weiner, his social media behavior, and yesterday's press conference. I'm not going to discuss Weiner's immoral and, dare I say it, despicable behavior in his online actions and the ensuing attempt at a coverup. What I do want to mention is that this serves to reiterate one of the important points I mentioned in yesterday's blog post: that anything you say or post is there forever. If you would not want something on the front page of your local tabloid, don't post it anywhere on the Internet. Of course, if you always attempt to behave appropriately, chances are you won't get into such a mess to begin with, but as we say in the business - that is out of scope for this discussion.

Monday, June 06, 2011

Social Media guidelines specific for (re)insurers

With social media here to stay, and many of us (actuaries, cat modelers, and other (re)insurance company personnel) actively involved in the social media on both personal and professional levels, it behooves us to remember certain social niceties. Everything that you post on the Internet is pretty much there for posterity; 50 years from now, the wayback machine will very likely be able to retrieve that one time you posted a picture of yourself at the holiday party—after spiked eggnog #7. My personal, primary rules, whether it be on twitter, linkedin, facebook, wikipedia, or some random bulletin board are:
  1. Never post anything on-line that you would be uncomfortable saying to someone's face in public.
  2. Never post anything on-line that you would be devastated seeing on the front page of the New York Times.
I am all for having a certain amount of silliness and fun on-line, I mean, where are you going to let your hair down, at work? However, there is a big difference between good-natured silliness and flaming. Too many people believe that there is anonymity on the Internet, and thus act selfishly, spitefully, and all-too-often just plain cruelly with the mistaken assumption that they will never be uncovered. Besides for this being awful and immature behavior, which speaks loads about the person demonstrating it, it can be a serious operational risk hazard for the person's employer, and thus potentially grounds for termination for the employee. For example, it has not even been a year yet since a Massachusetts schools' supervisor lost her job over a facebook post. To demonstrate Santayana's maxim still holds, a teacher in Brooklyn did not learn from history, and seems to be in danger of losing her job for the same reason.

Mairi Mallon, founder and managing director of rein4ce, and @reinsurancegirl on twitter, has recently authored a detailed post on her blog about this very topic (from which I shamelessly stole the idea). I very highly recommend anyone even tangentially involved in social media read it. Better yet, subscribe to her blog (which can be found in the blogroll at the side of this post). I think her summary is important enough that it bears repetition:

  1. Know and follow our (INSERT LINK TO OWN CORPORATE GUIDELINES) corporate guidelines . The same rules apply online.
  2. Users are personally responsible for the content they publish on blogs, Facebook LinkedIn, Twitter or any other form of user-generated media.
  3. Identify yourself—name and, when relevant, role within the organisation—when you discuss company or company-related matters. You must make it clear that you are speaking for yourself and not on behalf of the company.
  4. Respect copyright, fair use and financial disclosure laws.
  5. Don’t provide our or another’s confidential or other proprietary information. Ask permission to publish or report on conversations that may be deemed to be private or internal to the company.
  6. Don’t cite or reference clients, partners or suppliers without their approval. When you do make a reference, where possible link back to the source.
  7. Don’t use ethnic slurs, personal insults, obscenity, or engage in any conduct that would not be acceptable in our workplace (Mallon 2011).
Engaging the social media can be exciting and rewarding, both on a personal and a professional level; make certain that you don't hurt yourself, your image, your integrity, and your future when you do so. Everyone wants to be the next Richard Branson; I'm less certain about who wants to be the next Aleksey Vayner.

Mallon, Mairi, “Social Media guidelines — a freebie for insurance and reinsurance bods.” Weblog entry. Reinsurance girl's blog. June 6, 2011. June 6, 2011 (http://www.rein4ce.co.uk/blog/?p=315).

Sunday, June 05, 2011

Solvency 2, what I don't understand

There has been much fanfare about Solvency II, and how it will be coming to the US now that it is pretty much fait accompli to be a requirement for UK and European insurance companies starting in 2013. Perhaps I am missing something basic, but blow are some of the issues that I have with Solvency II:
  1. Isn't Solvency II based on the same principles as Basel II/III? Now how well has that worked for Europe. Greece, Iceland, Ireland anyone?
  2. The first pillar of Solvency II (Article 75 (1)(b)) requires that "...liabilities shall be valued at the amount for which they could be transferred, or settled, between knowledgeable willing par­ties in an arm’s length transaction." I don't know about the rest of you, but there really is no liquid market for (re)insurer loss reserves. I've been involved in pricing a few loss portfolio attempts--none of which came to fruition mind you--and each one is really a bespoke transaction. Different counter-parties to the same transaction will arrive at different values for the reserves. So how is Solvency II going to handle this?
  3. At its heart, the capital requirement is still a Value at Risk (VaR) measure, albeit at the 99.5%-ile. When will people learn that VaR is a rather non-robust statistic? It is a point on the cumulative frequency distribution, with no "knowledge" of what is above or below it. It is very susceptible to discontinuities (think step function), and its components are non-additive. At the very least, the measure should be based on TVaR, or the expected value above a given point. As an expectation, it is additive in its components (Co-TVaR measures exist and are meaningful) and it, as a first moment, reflects to some extent the entire distribution in the tail above the point, not just a point. As we all know, actually seeing any particular result from a continuous distribution almost never happens, which is why we talk intervals and not points.
  4. While Operational Risk is certainly a significant factor in a company's risk profile, I have yet to see any good measure or process to quantify the expected value of said risk. 
Unlike the banking industry, the insurance industry, especially in the US, has been rather stable for the past century or so, and while I agree that certain elements of Statutory Accounting, such as the holding of nominal reserves, may seem somewhat extreme with respect to other businesses, it has done rather well in ensuring a viable and solvent insurance industry. Why are we rushing into something which has neither the provenance (Basel) nor the track record (not even officially implemented in Europe) to justify adding a new accounting and solvency standard.