Actuarial and Risk – Twenty Third Floor

Actuarial and Risk, capital, financial risk, managing uncertainty, market risk, measurement, statistics

The Perils of Value-at-Risk and Portfolio Insurance

9 December 2024

David Kirk

It is essential to consider critical viewpoints that challenge conventional wisdom—especially when it comes to Value-at-Risk (VaR). In a thought-provoking dialogue, Nassim Taleb critiques VaR and highlights the dangers of portfolio insurance and dynamic hedging strategies. Here are key arguments from his 1997 forceful response to Philippe Jorion’s support for VaR. Misplaced Precision and Concrete…
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Actuarial and Risk

Stress Testing and Scenario Generation: Risk Management Way Beyond VaR

8 November 2024

David Kirk

Building on our series exploring risk measurement tools, let’s dive deep into stress testing and scenario analysis. While Value at Risk (VaR) has its place, it’s insufficient alone (and some would say outright deficient). Here we explore complementary tools that can provide richer insights into risk. Understanding the Distinction: Stress Tests vs Scenarios Stress tests…
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Actuarial and Risk, banking, capital, Featured, managing uncertainty, market risk, measurement

Value at Risk – not always a monster, but normally it is.

6 November 2024

David Kirk

Nassim Taleb is not a fan of Value At Risk (VaR) “You’re worse off relying on misleading information than on not having any information at all. If you give a pilot an altimeter that is sometimes defective he will crash the plane. Give him nothing and he will look out the window. Technology is only…
Read more: Value at Risk – not always a monster, but normally it is.
Actuarial and Risk, banking, financial risk, insurance, investments, life insurance, liquidity risk, measurement, systemic risk

Liquidity vs Solvency: Understanding Insurance Company Risks

2 November 2024

David Kirk

In this exploration of liquidity and solvency risks in insurance companies, we’ll examine how these risks interact, often in surprising ways. We’ll challenge common assumptions about insurance company risks and explore how modern insurance practices have evolved traditional risk profiles. Understanding the Basics: Banks vs Insurers The classic banking model of liquidity risk is straightforward:…
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Actuarial and Risk, alternative investments, capital, capital structure, climate change, insurance, managing uncertainty, measurement, microinsurance, modelling, Solvency Assessment and Management, Solvency II, statistics

Capital Modelling for parametric insurance – intro

21 October 2024

David Kirk

As parametric insurance gains traction, insurers face specific challenges in capital modeling and regulatory capital navigation. I have a longer paper coming out on this, but if you’re looking for an intro, here are some of the interesting and different aspects compared to more traditional insurance. 1. Regulatory Uncertainty: The treatment of parametric insurance under…
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Actuarial and Risk, capital, insurance, investments, life insurance, market risk, measurement, Solvency Assessment and Management, Solvency II

The Equity Symmetric Adjustment: Dispelling Myths and Understanding Market Dynamics

25 September 2024

David Kirk

Introduction In the world of insurance regulation, few mechanisms are as misunderstood as the equity symmetric adjustment (ESA), also known as the equity dampener. This feature, present in both the Solvency II framework in Europe and the Solvency Assessment and Management (SAM) regime in South Africa, is often incorrectly associated with the concept of mean…
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Actuarial and Risk, Demography, distribution, Featured, insurance, product & pricing

One answer could be pet insurance

16 September 2024

David Kirk

I firmly believe major demographics shifts are going to have massive social, political, economic, financial market and commercial impacts in the coming decades. The balance of savers and borrowers, investors, producers and consumers will change with complex effects. For example: 📊 Having fewer children has a temporary impact to boost productivity as resources aren’t spent…
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Actuarial and Risk, capital, credit risk, financial risk, insurance, life insurance, market risk, measurement, regulatory risk, Solvency Assessment and Management, Solvency II

Reinsurer credit rating and CQS – sovereign caps and misapplication of regulations

9 September 2024

David Kirk

Does the “sovereign cap” apply to credit ratings for insurer solvency reporting? This came up in a discussion about treatment of reinsurance and choice of Credit Quality Step (CQS) under South African regulations. Usually a local currency, international scale credit rating from a credit rating agency is the most direct way to establish a reliable…
Read more: Reinsurer credit rating and CQS – sovereign caps and misapplication of regulations