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Thread: Risk management for a life actuary

  1. #1
    Actuary.com - Newbie Poster
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    Risk management for a life actuary

    Hello!

    I have a few different questions on topics involving an doing risk management in life insurance. If someone could shed some light on these issues, I would be very thankful.

    a) How does an actuary do the solvability calculations as imposed by Solvency II in practice? How does this look like?

    b) How does an internal model in life insurance look like?

    c) How does the implementation of risk limit systems look like?

    d) What are the most important risks, which life insurance faces? Obviously, the fluctuation of interest rate is one such risk. What are others?

    e) Why is it worse for a life insurance if the market interest rate rises? If the interest rate grows, then the bonds are worth less. But if the interest rate drops, then your investments don't generate as much revenue. So why is it worse if the interest rate gets bigger?

    I would be very grateful for some resources, where these subjects are explained, in an easy to understand language.

    A few other questions on different topics:

    1) For which casualty lines are heavy tail distributions used, except fire and liability (industry) ?

    2) Similarly, where are light tail distributions usually used?

    3) Is ruin theory used in practice? How strong are ruin probabilities dependent on the distribution class used in calculations?

    4) What are the similarities and differences between Solvency II and MaRisk (VA) ?

    5) How do you determine the rating of a specific financial position if you know it's VaR?

    As I said, if you can contribute in any way, so that I can get some answers to these questions, please do so. Your input is priceless for me.

    Thank you very much for your time!

  2. #2
    You spam? I ban! Irish Blues's Avatar
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    Quote Originally Posted by chrisr34000 View Post
    Hello!

    I have a few different questions on topics involving an doing risk management in life insurance. If someone could shed some light on these issues, I would be very thankful.

    a) How does an actuary do the solvability calculations as imposed by Solvency II in practice? How does this look like? Details still being worked out, from what I can recall - but it's not my area of expertise.

    b) How does an internal model in life insurance look like? Not my area of expertise, someone who does life will have to answer - but I suspect your question is still too vague as it doesn't ask what's being modeled. The same applies to c-e, I don't do life insurance.

    c) How does the implementation of risk limit systems look like?

    d) What are the most important risks, which life insurance faces? Obviously, the fluctuation of interest rate is one such risk. What are others?

    e) Why is it worse for a life insurance if the market interest rate rises? If the interest rate grows, then the bonds are worth less. But if the interest rate drops, then your investments don't generate as much revenue. So why is it worse if the interest rate gets bigger?

    I would be very grateful for some resources, where these subjects are explained, in an easy to understand language.

    A few other questions on different topics:

    1) For which casualty lines are heavy tail distributions used, except fire and liability (industry) ? Heavy tailed distributions tend to be used for long-tailed lines, where severity can range from very small to very large and there's a non-zero probability of all loss sizes in the range. Fire is not necessarily heavy-tailed, depending on what line we're talking about.

    2) Similarly, where are light tail distributions usually used? Short-tailed lines such as auto physical damage, or lines where high severity events are extremely rare.

    3) Is ruin theory used in practice? How strong are ruin probabilities dependent on the distribution class used in calculations? Completely depends on the purpose for calculating a ruin probability and the assumptions being made. If considering "normal" HO losses, the distribution of losses isn't going to matter - loss frequency would be more important. If considering GL losses in a reinsurance setting, it's probably more important. In practice, I've never used anything to do with ruin theory - it probably comes up in economic modeling or Finance, but in a different application under a different name.

    4) What are the similarities and differences between Solvency II and MaRisk (VA) ? Not my area of expertise.

    5) How do you determine the rating of a specific financial position if you know it's VaR? VaR is not intended to be used to assign ratings, much less determine the rating of any transaction. It's intended to determine the probability of a loss for a portfolio exceeding a given threshold over a given time frame - and even then, there's issues with how well it does this. Thus, your question makes no real sense.

    As I said, if you can contribute in any way, so that I can get some answers to these questions, please do so. Your input is priceless for me.

    Thank you very much for your time!
    Comments in bold.
    "You better get to living, because dying's a pain in the ***." - Frank Sinatra

    http://www.hockeybuzz.com/blogger_ar...blogger_id=174 - where I talk about the Blues and the NHL.

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