Insurers look to optimise curve-fitting technique

Curve fitting is one of the most popular approximation methods to value liabilities. But it has limitations and insurers are working hard to optimise the technique, reports Clive Davidson

For an internal model to be of practical use in the everyday business decision-making of an insurer – and Solvency II insists that it should be – it must be able to produce results in a useful timescale. Given current technology, the only way to achieve this for liability portfolios of any size or complexity is to use an approximation method for their valuation because full stochastic modelling would simply take too long.

Insurers wanting to make early progress on their internal models have not