Aggregation and Simulation techniques

Objectives:

Insurance companies are increasingly using more sophisticated techniques in their economic capital models for aggregation of different risks, e.g. moving away from correlation matrices to more complex aggregation techniques, for performing simulations, e.g. proxy modelling techniques and for setting risk measures.

With the increased use of Internal Models for Pillar 1 capital requirements on Solvency II, as well as the heightened Pillar 2 requirements, these techniques are likely to come under greater scrutiny from stakeholders including Boards, who would be expected to understand the approaches used, and regulators who will expect evidence-based justification of the choices made.

The Working Party will look into the different techniques used and how actuaries and insurers can assess and choose between the range of approaches available.  The emphasis of the working party is not expected to be on the technical details and merits of the specific techniques themselves, but rather on how insurers can test, communicate and justify to stakeholders the choices made.

Outputs:

• Sessional meeting, Edinburgh: 27 June 2016
• LV CPD Event: 9 June 2016
• Paper: Simulation based capital models – testing, justifying and communicating choices
• Presentation: Our Changing Futures: Testing, Communicating and Justifying your Capital Model, 27 October 2015
• Presentation at Life Conference 2015 - 'Communicating Choices in Internal Models'
• Presentation at Momentum Conference 2015 - 'Communicating Aggregation and Simulation Techniques in Life Insurance'