Alternative liability modelling techniques
A recent study in the US by the Society of Actuaries and Ernst & Young has examined the effectiveness of a range of new liability modelling techniques. Clive Davidson reports on the results of the tests
There are two key ways to make the task of stochastically modelling liabilities more manageable – by compressing the number of policies, or by reducing the number of scenarios through which the policies are simulated. There are a number of potential techniques for both approaches, and insurers are already investigating or implementing several of these for their product pricing, risk management and regulatory reporting. Life & Pension Risk has already looked at some in detail – replicating
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