Life Insurance Risk Management Essentials

357 Pages·2011·9.26 MB·English

by  Michael Koller (auth.)

EAA series - Textbook
Editors
D.Filipovic(Co-Chair) M. Koller E.Pitacco
C.Hipp A.Pelsser U.Orbanz(Co-Chair)
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Michael Koller
Life Insurance
Risk Management
Essentials
MichaelKoller
MathematicsDepartment
ETHZurich
Rämistr.101
Zurich8092
Switzerland
[email protected]
ISSN1869-6929 e-ISSN1869-6937
ISBN978-3-642-20720-4 e-ISBN978-3-642-20721-1
DOI10.1007/978-3-642-20721-1
SpringerHeidelbergDordrechtLondonNewYork
LibraryofCongressControlNumber:2011928505
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For Luisa,GiuliaandAnna

Introduction
Fig.0.1 RiskManagementinaNutshell
viii Introduction
When starting to write a book, one always needs to ask oneself why one wants to
dothatandwhoisthetargetaudience.Furthermoreoneneedsalsotoknowwhatis
requiredfromhisaudience.
Tostartwiththefirstquestion.Ihaveperformedquiteawiderangeofjobsindiffer-
entinternationalinsurancegroupsandfoundthatsomepatternsalwaysrepeatand
thatthereisaneedforeducationinrelationtoriskmanagement.Soateveryplace
therewerepiecesmissingandtheoverallriskmanagementstructurehadtobeim-
proved.OvertimeIhadtorepeatpartsofthiseducationalprocessagainandagain.
So I decided that it would be worthwhile to gather and compile all these different
factsandleaningsinorderthatotherpeoplecanprofitfromit.Ithoughtthatitwould
beinparticularvaluabletohaveabookwhichcoversawiderangeofdifferenttop-
icsinrelationtoriskmanagementinsuchawayandtangibleenoughtobereadily
applicable.
Hence the book does not focus on abstract concepts for the sake of mathematical
beauty,butratherwiththeaimtoconcretelysolveproblemsandinordertobeableto
setupatopperformingriskmanagementorganisation.Ihaveputconsiderablefocus
in order to make the book as practical and applicable as possible and I have tried
toshowalotofconcretereportingtemplatesincludingmethodologyandexamples,
inordertobetterunderstandthecontext.Myintentionwas,thatonecouldreadthis
bookinordertoafterwardsbeabletosolveandimplementsome80%ofthetypical
questions which occur when setting up a concrete risk management organisation.
Twothingsneedtobestressed:ononehandtherearealwaysalotofdifferentways
whichleadtoRome,hencetheremightinsomeinstancesexistbettersolutionsthan
thosepresentedinthisdocument.OntheotherhandIbelievethatthisbookisalso
suitedfortheadvancedreaderduetoitsaimtobequiteextensive.Theoverallfocus
of this book is mainly on financial risk management, insurance risk management,
economic steering of an insurance company, insurance processes and products. I
would also like to mention, that the methods presented in this book are not only
applicable to life insurance companies, but also to pension funds, applying them
mutatismutandis.
Introduction ix
IwrotethisbookbecauseIbelievedthiswouldbefunandhelpmetobetterunder-
standriskmanagement.Thisbookisintendedforboththosewhowanttolearnrisk
managementstartingatabeginner’slevel,butalsofor readerswhowanttowiden
theirhorizon.Ihavealsotriedtoincludemorepracticalquestions,suchaswhatcan
gowrongwithparticularproductsinordertohelptoavoidthem.
The book is aimed to be self contained and I expect the reader to understand the
basicsofanalysisandsomeprobabilitytheory,suchas[JP04].Sincetheapplication
of the theoryand methodsis in the centre, we use different types of mathematical
approaches without proof. The required mathematics has been placed in different
appendices. Some of them require advanced mathematics such as measure theory,
functional analysis and stochastic integration. Here we refer to the following text
books for the underlying theory: measure theory – [DS57], functional analysis –
[DS57],[Con91],[Ped89],stochasticintegration–[IW81],[Pro90].FinallyIwould
like to give some references in respect of arbitrage free pricing theory – [Pli97],
[KM03],[Duf92]andinterestrateandequitymodels–[BS73],[CIR85],[Hul97],
[BM01].Fortherelevantactuariallifeliteraturewereferto[Ger95]and[Kol10].
FinallyIwouldliketothankthemanypeoplewhohelpedmetomakethisproject
happen. In particular I would like to thank my wife Luisa and my children who
alwayssupportme.
MichaelKoller,2010