Risk Lighthouse LLC. Atlanta Office Suite Piedmont Rd. Office: Fax:

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1 Risk Lighthouse LLC 1 P a g e

2 Mission We bring theory to practice. We bring academics to business. We solve real world problems by combining quantitative and qualitative approaches. COMPANY OVERVIEW Risk Lighthouse LLC is a research and consulting firm specializing in the development of economic risk intelligence, risk indices and modeling tools for the financial and insurance industries. Since our beginning in 2005 we have served corporate clients from different continents, such as Europe, Asia, North America and Oceania. We are dedicated to bringing our clients a customized, cost-effective and balanced approach to solving complex issues in a rapidly changing business environment. We strive for long-term, collaborative relationships with clients that address management s specific issues through a customizable, academically rigorous, integrated set of models without the overhead and costs of highly complex and specialized software and asset class based systems. We advise banks, insurance companies, industry organizations and regulatory agencies in various areas with our unique combination of research insights, analytical skills and practical experience. OUR SERVICES Risk Indices and Benchmarks Operational Risk Modeling Non-Traditional Actuarial Consulting Integrated Economic Scenarios Validation of Parameterization of Internal Models Self-Directed Research PROJECT EXPERIENCE Risk Lighthouse has successfully accomplished several projects in all of the services we offer. Some recent highlights include the following projects: Property and Casualty Insurance Risk Indices and Benchmarks Risk Lighthouse has significant experience in cleaning and building a P&C Schedule P database for analytical purposes. Current clients include large U.S. reinsurance brokers and national primary insurance companies. We seek to add value to our clients by providing a customized Schedule P database with: 2 P a g e

3 32 Accident Years of data (1980 through 2011) for all major lines of business at individual company level and company group level. Preparation of data by market segments. Actuaries and analysts can directly apply actuarial methods to the data to achieve reliable results. This also helps to build reliable industry-level data. Customization of the data execution file, making data analysis more convenient and hassle-free. Using the extensive database, we develop a multi-line underwriting cycle model, benchmark parameters for pricing, reserving risks and correlations across lines of business, which can also serve as the basis for validation of parameterization of internal models. This joint work with our client Guy Carpenter received the 2011 CAS/CIA/SOA Risk Management Section award for the best paper with practical risk management applications. Operating Risk Modeling (OPERisk) Risk Lighthouse advises banks on implementation of Basel II Advanced Measurement Approach to Operational Risk Modeling. We gained extensive experience by helping banks build their operational risk models. Our methodology has at least the following advantages: Employs a parametric severity-frequency approach. Combines industry benchmarks, company internal operational loss records, qualitative risk survey data, and Wang Transform application to adjust probability distributions. Uses recursive evaluation algorithm which enhances accuracy of the tail estimation and sensitivity analysis. Implements Wang Transform to calibrate risk-loaded premiums for different types of operational risks, which serves to determine the capital allocation. Integrated Economic Scenarios Risk Lighthouse has developed integrated modeling of inflation rates and interest rates and analyzed how they are influenced by ongoing structural changes in the global economy. Clients including large reinsurance companies use our model to adjust their own ESG models. Traditional interest rate models for pricing purposes only contain stochastic processes without considering effects of external economic variables such as inflation and unemployment rates, which can be key factors that affect the economic policy decision by the Federal Reserve Bank. Since the Federal Funds Target rates set by the Federal Reserve Bank are highly correlated with short term interest rates, our interest rate model combined the traditional stochastic process and the Taylor Rule to incorporate the external macroeconomic variables, making the mean forecasting and the volatility more accurate and reasonable. 3 P a g e

4 A third party expert opinion on an internal existing ESG model can be of great support to adjust the future scenarios of the simulation process. A set of economic scenario inputs for internal risk management framework, such as a dynamic financial analysis tool. With more accurate inputs, clients can obtain more accurate forecasts of their future financial reports including balance sheet and income statement. Non-traditional Actuarial Consulting - Reliability Modeling and Cost Saving Analysis Risk Lighthouse purifies and analyzes datasets from non-financial firms. We then develop predictive models that help these institutions improve operational efficiency or reduce costs. In the field of reliability analysis, we have analyzed mean times to failures in both classic distribution and nonparametric frameworks to create value-enhancing predictive models. Current clients include the U.S. government and the applied research arms of universities. We seek to add value to our clients by helping them to Assess the effect of product reliability on the maintenance activity and on the quantity of spare units required for acceptable field performance of any particular system. For example, predictions of the frequency of unit level maintenance actions can be obtained. Provide necessary input to unit and system-level Life cycle cost analyses. Life cycle cost studies determine the cost of a product over its entire life. Therefore, how often a unit will have to be replaced needs to be known. Inputs to this process include unit and system failure rates. This includes how often units and systems fail during the first year of operation as well as in later years. Set achievable in-service performance standards. 4 P a g e

5 RECENT PUBLICATIONS AND ACHIEVEMENTS Risk Lighthouse (Shaun Wang, Han Chen, Zhou Fang etc.) led a research project Development of a Network Model for Identification and Regulation of Systemic Risk in the Financial System - sponsored by CAS, CIA, SOA Joint Risk Management Section. This research project showed how a clearinghouse stymies loss propagation and highlights the usefulness of important data such as counterparty exposures that are not publicly available via the network model. Shaun Wang and Han Chen (Risk Lighthouse), and Jessica Leong (Guy Carpenter) published a paper, Back-Testing the ODP Bootstrap of the Paid Chain-Ladder Model with Actual Historical Claims Data on CAS E-Forum, Summer 2012 Risk Lighthouse (Shaun Wang and Charles Pan) and Guy Carpenter (John Major and Jessica Leong) co-authored U.S. Property-Casualty: Underwriting Cycle Modeling and Risk Benchmarks received the Best Practical Paper prize at the 2011 ERM Symposium. Shaun Wang authored the paper Building toward a resilient financial system and presented at the ERM-II Research Workshop (Release Date: August 2009). Shaun Wang led a research project The Financial Crisis and Lessons for Insurers - sponsored by the Society of Actuaries; he also delivered a Capitol Hill briefing on the research findings in September This research project investigates how the subprime and the broader financial crises impact insurance companies asset portfolios and capital adequacy, as well as enterprise-wide risk management implications. Shaun Wang authored Risk Intelligence in the March 2009 Risk Management Newsletter. This article discusses how companies can go beyond risk modeling and collect risk intelligence to guide business decisions. Shaun Wang co-authored with Dr. Robert Klein a paper Catastrophe Risk Financing in the United States and the European Union: A Comparison of Alternative Regulatory Approaches, published in the June 2009 Journal of Risk and Insurance. Shaun Wang co-authored with Robert Faber a research paper in 2006 entitled Enterprise Risk Management for Property-Casualty Insurance Companies which looks at the major ERM issues faced by property-casualty insurers. Shaun Wang was awarded U.S. Patent Number: 7,315,842 on January 1, 2008 for his Patent Title: Computer System and Method for Pricing Financial and Insurance Risks with Historically- Known or Computer-Generated Probability Distributions. 5 P a g e

6 OUR TEAM Founder and Non-Executive Chairman: Shaun Wang, PhD, FCAS, MAAA Dr. Shaun Wang is working in Geneva Association as Deputy Secretary General and Head of Research. Dr. Wang is an experienced educator, with visiting appointments at the University of Copenhagen in Denmark, Peking University s Guanghua School of Management, Wuhan University s School of Economics and Management, and University of Hong Kong s Faculty of Business and Economics. He was a professor and director of Actuarial Science in the Department of Risk Management and Insurance at Georgia State University's Robinson College of Business, and the holder of the Thomas P. Bowles Chair of Actuarial Science. He also held permanent faculty positions at the University of Waterloo and Concordia University in Canada Shaun is internationally renowned as an expert on quantification and measurement of risk and a leading actuarial scholar in enterprise risk management He advised several banks and insurance companies in risk modeling and valuation. Prior to joining the Georgia State faculty, he worked for seven years at SCOR a global reinsurance company Dr. Wang has published extensively in leading journals such as the ASTIN Bulletin, the Journal of Risk and Insurance, The North American Actuarial Journal, and Insurance: Mathematics and Economics. Dr. Wang is the inventor (patent holder) of the Wang Transform for pricing catastrophe risks, credit risks, and weather derivatives. He served as Editor of the ASTIN Bulletin and on the editorial boards of several leading publications. He is also Scientific Director of the ERM Institute International, Ltd. Ph.D. in Statistics from the University of Waterloo, and B.S. Degree in Mathematics from Peking University Vice Chairman : Markus Stricker, PhD, SAA Dr. Markus Stricker is currently a faculty and Director of the Willis Economic Capital Forum at the Risk Management and Insurance Department of Georgia State University s Robinson College of Business. Markus has more than 15 years of experience in actuarial model development and validation, capital management, and reinsurance optimization. He received his Ph.D. in Mathematics in 1989 from ETH Zurich, and started his career as an educator at the University of Chicago in Since 1996, he held various senior actuarial and risk management positions at Swiss Re, Aon Re, and Towers Perrin Tillinghast. In 2007, Markus founded Intuitive Collaboration AG, in which he developed and implemented economic capital models for Solvency II and risk management guidelines. Markus is a fellow of the Swiss Association of Actuaries (SAA) since He has served on the expert committee on professional education of the Swiss Association of Actuaries and has several publications on risk management practices. His areas of expertise include building actuarial models, model validation, applications of economic capital, and alternative risk analytics. 6 P a g e

7 Director of Operation: Evan Leite Expertise: Statistical modeling, data cleaning, analysis, and programming Education: M.S. in Actuarial Science from Georgia State University, and B.S. in Statistics from the University of Georgia Director of Research : Han Chen Expertise : Modeling development and US insurance market data gathering and analysis Extensive experience in data analysis of US insurance companies Schedule P Education: M.S. in both Actuarial Science and Risk Management and Insurance from Georgia State University, and B.A. in Mathematics from Fudan University in China Senior Risk Analyst: Terry Fang Expertise: Risk management, financial modeling, data analysis, programming and reporting Education: Dual degree - M.S. in Actuarial Science and Risk Management and Insurance from Georgia State University, M.S. in Electrical Engineering from Rensselaer Polytechnic Institute, and B.S. in Electrical Engineering from Zhejiang University in China Office Manager: Jasmine Speights Some of her duties include: Providing office support for staff, developing marketing strategies, maintaining human resource personnel files and payroll, and managing accounting records. Prior work experience : Office Coordinator- United States Government: Securities and Exchange Commission, Executive Assistant- Dean s Office-College of Arts & Sciences at Georgia State, and Apprentice-United HealthCare Education: Bachelors in Psychology and Managerial Sciences with a minor in Hospitality Administration from Georgia State University Risk Analyst: Yisi Lu Expertise: Data cleaning, data analysis and programming Education: M.S. in Actuarial Science from Georgia State University and B.A. in Statistics from Renmin University of China. 7 P a g e

8 Risk Analyst: Luke Hankins Expertise: Programming, data cleaning and analysis, and statistical models Education: M.S. in Actuarial Science from Georgia State University and BA in Mathematics from Carleton College in Minnesota. Risk Analyst: Gene Hou Expertise: Data analysis, programming, and statistical modeling Education: Bachelor degree in risk management and insurance from UGA and M.S. in Actuarial Science at GSU. 8 P a g e