Financial economics and the theory of solvency

Document description

The first International Conference on Insurance Solvency was held in June 1986 in Philadelphia, U.S.A. At this Conference, the Solvency Working Party presented a paper which reported their work to date. The Conference was also attended by a collection of individuals from the U.S. who were trained as financial economists and whose approach to the solvency question was entirely different from our own. The second International Conference on Insurance Solvency is now being planned for May 1988. Its stated objective is the integration of the different approaches of actuaries and economists. It was felt that an explanation of the theoretical foundation of financial economics would prove useful to those who are likely to attend the second International Solvency Conference and also that a study of this body of knowledge might provide insights which could enable further progress to be made on the important question of solvency. The purpose of this paper is to provide that explanation.