Modelling in Life Insurance – A Management Perspective

263 Pages·2016·0.42 MB·English

by  Jean-Paul Laurent

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
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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