Setting discount rates is a crucial and subjective exercise. This is true for life insurance embedded values too. Many researchers are comfortable with a range for Equity Risk Premiums of between 3% and 5%. Many corporate finance practitioners use a range from 5% to 8% or even higher. My nearly eight-year-old blog post on mis-estimating […]
Category archives: managing uncertainty
Ghosts of bullets dodged
I have never owned Steinhoff shares. I was surprised then, when going through some old blog uploads (dealing with a separate copyright issue that I may touch on in another post) to find this share price graph of Steinhoff from 2007 I don’t remember looking at this, but the blog entry was actually about insider […]
Illusory truth
I’ve been using snopes.com to fact check dubious stories since before fake news was a term. I still recommend it to everyone. I also teach elements of critical thinking in some of the actuarial normative skills workshops I run. By the time students get to me there, they are often already pessimistic and cynical when […]
Downwards counterfactual analysis
Stress and scenario testing are important risk assessment tools. They also provide useful ways to prepare in advance for adverse scenarios so that management doesn’t have to create everything from first principles when something similar occurs. But trying to imagine scenarios, particularly very severe scenarios, isn’t straightforward. We don’t have many examples of very extreme […]
Credit Life regulations and reactions (2)
In part 1 I discussed the implications of basing premiums on initial balance or declining balance for profitability and the threat of substitute policies. In this post I want to discuss substitute policies again, talk about cover for self-employed persons and definitions of waiting periods. What is a substitute policy Substitute policies are one of […]
Systemic risk primary poll
Behavioural economics and XKCD
This is premature for a book review as I’m only on page 3 or something. The book:Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry has been recommended to me a few times. (Okay, twice by the same person, but that also actually says something.) I’ll work my way through it and give you […]
SA85-90 “combined” and more actuarial sloppiness
I know of far too many actuaries who think that the “average” SA85/90 table is an appropriate base for their insured lives mortality assumption. It’s not. It’s also a good example of “actuarial sloppiness”. To be specific, it is equally inappropriate if your current experience is a reasonable fit for the combined SA85/90 table. SA85/90 […]