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Managing Environmental Risk in Life Insurance and Pensions
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When
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17.00
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Where
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H102
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Presentations
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Speaker
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Ragnar Norberg
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From
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LSE
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Abstract
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The principle of equivalence states that expected discounted premiums should be equal to expected discounted benefits. The rationale is that, in a sufficiently large portfolio of independent risks, the gains and losses on the individual policies will balance on the average. In the presence of environmental risk factors that affect all policies in the portfolio, the independence assumption may hold true conditionally, given the outcome of
those factors, but unconditionally the individual risks become dependent. In life and pension insurance, the major environmental risk factors are economic and demographic indices like interest and mortality, which may vary considerably and in a random manner over the (typically) long term of the contracts. Increasing the size of the portfolio exacerbates rather than mitigates such forms of risk, and actuaries have therefore invented different means of managing them. In this talk I will first describe some traditional approaches, notably the with-profit and unit-linked schemes. Then I will identify some
unifying principles and discuss alternative approaches in a fairly general model framework. Ideas from optimal stochastic control theory will be at work. Technical issues arising are: How to model the environmental risk factors? How to design optimal payment plans in a given model? How to do the numerics for complex models and products?
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For further information
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Ulla Jakobsen (Administrative Assistant) Ext. 6879
Department of Statistics, Columbia House
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