Actuarial Notes

IAA Risk Book: Appropriate Applications of Stress and Scenario Testing

By Eberhard Müller and David Sandberg · International Actuarial Association · 2020 · CFE101-111-25

Study guide: Exam CFE-101

A chapter of the IAA Risk Book, developed and approved by the Insurance Regulation Committee of the International Actuarial Association (version 1.0, February 2020). It builds on prior work by the IAA and the CRO Forum with a focus on the appropriate application of the stress testing process, covering definitions, purposes and process, governance, limitations and examples of stress tests and scenario analyses.

On the syllabus

  • Exam CFE-101 — CFE101-111-25: IAA Risk Book, Appropriate Applications of Stress and Scenario Testing; outcomes 1.3a, 2.2d.

Introducing the IAA Risk Book

1 Executive Summary

2 Definitions: Which Kind of Stress Tests are Covered?

3 Purpose of ST/SA and Process

  • 3.1 Who Defines the ST/SA and Uses the Results?
  • 3.2 Elements of the ST/SA: Input, Output and Interpretation of Results
    • 3.2.1 Input environment
    • 3.2.2 Assessment and valuation
    • 3.2.3 Interpretation of Results
      • 3.2.3.1 Quantitative conclusions
      • 3.2.3.2 Qualitative conclusions

4 Governance of Stress Tests

5 Limitations of Stress Tests

  • 5.1 Limitations Overview
  • 5.2 Getting Meaningful Results From ST/SAs?
  • 5.3 Selection of scenarios and examples (by risk category or historical usage)

6 Examples

  • 6.1 Examples of Typical Stress Targets
  • 6.2 Historical Examples
  • 6.3 Examples of practical use

Sources