Modelling in Life Insurance – A Management Perspective PDF
Preview Modelling in Life Insurance – A Management Perspective
EAA Series Jean-Paul Laurent Ragnar Norberg Frédéric Planchet Editors Modelling in Life Insurance – A Management Perspective EAA Series Editors-in-chief Hansjoerg Albrecher University of Lausanne, Lausanne, Switzerland Ulrich Orbanz University Salzburg, Salzburg, Austria Editors Michael Koller ETH Zurich, Zurich, Switzerland Ermanno Pitacco Università di Trieste, Trieste, Italy Christian Hipp Universität Karlsruhe, Karlsruhe, Germany Antoon Pelsser Maastricht University, Maastricht, The Netherlands Alexander J. McNeil Heriot-Watt University, Edinburgh, UK EAAseriesissuccessoroftheEAALectureNotesandsupportedbytheEuropean Actuarial Academy (EAA GmbH), founded on the 29 August, 2005 in Cologne (Germany)bytheActuarialAssociationsofAustria,Germany,theNetherlandsand Switzerland. EAA offers actuarial education including examination, permanent education for certified actuaries and consulting on actuarial education. actuarial-academy.com More information about this series at http://www.springer.com/series/7879 Jean-Paul Laurent Ragnar Norberg (cid:129) é é Fr d ric Planchet Editors – Modelling in Life Insurance A Management Perspective 123 Editors Jean-Paul Laurent Frédéric Planchet UniversitéParis 1 Panthéon-Sorbonne UnivLyon – UniversitéLyon1 – ISFA – Paris LSAF France Lyon France Ragnar Norberg UnivLyon – UniversitéLyon1 – ISFA – LSAF Lyon France ISSN 1869-6929 ISSN 1869-6937 (electronic) EAA Series ISBN978-3-319-29774-3 ISBN978-3-319-29776-7 (eBook) DOI 10.1007/978-3-319-29776-7 LibraryofCongressControlNumber:2016933465 MathematicsSubjectClassification(2010): 00A06,00A09 ©SpringerInternationalPublishingSwitzerland2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authorsortheeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinor foranyerrorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAGSwitzerland Foreword I am on the side of models. Alwayshavebeen. Bypersonal inclination and actuarial educationIlove going deep into the mathematics and intricacies of models. For the intellectual challenge they offer. For knowing what’s under the hood. However, I often have not had enough time to do so… I recognize, because it does indeed take time. In my different capacities as manager and now as a CEO of an insurance company, I regularly come across models, especially when a decision is at stake. Ialwaysfeltthatmodelscouldandshouldhelpme,thattheyhavesomethinguseful to tell to me. But I have to admit that it is not that easy to decipher their words, howeverhardyoutrytolisten!Ifyouhavealreadyexperiencedusingmodelsinthe perspective of steering an insurance company, you know well that there are often hot debates on how far the say of models should prevail in decision-making: there are pros and cons; there are experts and ignorants… The good use of a model’s adviceisquiteatrickyissue.Moreoftenthannot,asthefinaldecision-maker,you feel alone with your trust toward or your defiance against the model’s outputs. Tobreakfreefromthisloneliness,youabsolutelyneedtoreadthisbookbecause academicsandexpertsonmodelsarehereconvenedtoexpresstheiropinionsonthe multiple issues of developing, implementing and using models from both theoret- ical and practical viewpoints… and because they did so in a very accessible way, closer to the b1 language than to the standard vocabulary of a doctorate thesis. Believe me, that feat is the trademark of the best as, to quote Nicolas Boileau in L’artpoétique(1674):“whate’eriswellconceivedisclearlysaid.Andthewordsto say it flow easily.” Thisbookwillbeinstrumentalinhelpingyoutomakeinformeddecisionsbased on a thorough and comprehensive understanding of what models bring to the decision table and what they do not. Indeed, you, as managers, should be eager to Know Your Models. The acronym KYM should nowadays be placed on all life insurance companies just like the sentence “Know thyself” was carved into the temple of Delphi, house of the Pythia who predicted the future. So enter now the house of models and receive the sought-for knowledge! v vi Foreword Forthoseofyouwhoneedamapofthehouse,gostraighttotheintroductionby Jean-Paul Laurent, Ragnar Norberg and Frederic Planchet. There, chapter by chapter, are unveiled the issues addressed by the different authors of the book, the solutionstheyenvisionedandtheroadtheyproposetogoontofixthem.Attheend of this introduction, I am sure you could not help but be surprised by so many complex unresolved questions touching all areas of modelling. Indeed, before opening this book, you may have first thought that modelling is a known and familiar territory; now you know that there is still a lot of research to do! Well, quite early, I was convinced that outside academic research, there was no salvation: as the Directive Solvency II turned out to give a central role to models, I sensed that perhaps financial models were taking on too much of the regulation load without being fully adapted to the specificities of the insurance business and thattheconsequencesofmassivelyusingthemwerenotsufficientlyassessed.Ifelt bothasenseofdanger(arewemadtoputthesolvencyofourinsurancecompanies in the hands of market-consistent risk-neutral models?) mixed with a sense of opportunities(ifflawsexist,Iamsurewecouldfindawaytofixthem).Thatisthe reasonwhyBNPParibasCardifdecidedtogiveitsfullsupporttotheBNPParibas Cardif research chair hosted by the ISFA actuarial school. This book is a five-year research milestone of the chair. It gives the flavour, if not the cream, of the great work accomplished during all these years under the helm of, first, V. Maume-Deschamps, and now C. Robert. I once had the oppor- tunitytoattendtheBoardofthechair.Iconfessthatitwasmypleasureandasource of great intellectual inspiration to debate with such an enthusiastic and innovative bunch of researchers. The number of publications they produced during this time span (one hundred) is a clear testimony to the quantity and the quality of their collective work. IalsowouldliketopaytributetoJ.-P.Laurentwho,astheheadoftheeditorial committee, did a tremendous job in gathering complementary chapters which, overall, gives a comprehensive impression of where the models stand, where they come from and where they might go to. You will find advice and best practices, warningsandfoodforfurtherthought.Youcanreadthebookfromfronttobackif youwantto:initskind,itisapage-turner.Butifyouwouldratherskiparoundand just read the topics that interest you, that is fine, too. Whateveryourreadingapproaches,Ihopethatyouwilltakeasmuchpleasurein reading it as I did. I am also ready to bet that you will find some unexpected treasure hidden in these pages and that you will be taught invaluable lessons. So now… will you join me on the side of models? Pierre de Villeneuve CEO of BNP Paribas Cardif Contents Part I Life Insurance Context 1 Paradigms in Life Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Ragnar Norberg 2 About Market Consistent Valuation in Insurance . . . . . . . . . . . . . 43 Pierre-E. Thérond Part II Design and Implementation of Life Insurance Models 3 Cash Flow Projection Models. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Jean-Paul Felix 4 Economic Scenario Generators. . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Thierry Moudiki and Frédéric Planchet 5 From Internal to ORSA Models . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Frédéric Planchet and Christian-Yann Robert 6 Building a Model: Practical Implementation . . . . . . . . . . . . . . . . . 125 Patrice Palsky Part III Model Validation and Steering Processes 7 Ex-ante Model Validation and Back-Testing . . . . . . . . . . . . . . . . . 151 Stéphane Loisel and Kati Nisipasu 8 The Threat of Model Risk for Insurance Companies . . . . . . . . . . . 161 Christian-Yann Robert 9 Meta-Models and Consistency Issues. . . . . . . . . . . . . . . . . . . . . . . 181 Jean-Paul Laurent vii viii Contents Part IV Models and Business Processes 10 Model Feeding and Data Quality . . . . . . . . . . . . . . . . . . . . . . . . . 205 Jean-Paul Felix, Nathalie Languillat and Amélie Mourens 11 The Role of Models in Management Decision-Making . . . . . . . . . . 223 Bernard Bolle-Reddat and Renaud Dumora 12 Models and Behaviour of Stakeholders . . . . . . . . . . . . . . . . . . . . . 237 David Ingram and Stéphane Loisel Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Contributors Bernard Bolle-Reddat BNP Paribas Cardif, Paris, France Renaud Dumora BNP Paribas Cardif, Paris, France Jean-Paul Felix BNP Paribas Cardif, Paris, France David Ingram WILLIS RE, New York, USA Nathalie Languillat BNP Paribas Cardif, Paris, France Jean-Paul Laurent Université Paris 1 Panthéon-Sorbonne, Paris, France Stéphane Loisel Univ Lyon – Université Lyon 1 – ISFA – LSAF, Lyon, France Thierry Moudiki UnivLyon–UniversitéLyon1–ISFA–LSAF,Lyon,France Amélie Mourens BNP Paribas Cardif, Paris, France Kati Nisipasu SCOR, Paris, France Ragnar Norberg Univ Lyon – Université Lyon 1 – ISFA – LSAF, Lyon, France Patrice Palsky Fractales, Paris, France FrédéricPlanchet UnivLyon–UniversitéLyon1–ISFA–LSAF,Lyon,France; PRIM’ACT, Paris, France Christian-Yann Robert Univ Lyon – Université Lyon 1 – ISFA – LSAF, Lyon, France Pierre-E. Thérond Galea & Associés, Paris, France; Univ Lyon – Université Lyon 1 – ISFA – LSAF, Lyon, France ix
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