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 […]

Island Life

There is a Mauritian insurer called Island Life. Best name ever for an insurance company. I firmly believe in anthropogenic climate change. I am not an expert, but my reading has convinced me of the seriousness of the issues, the overwhelming evidence that it is humans at fault. Having young children makes me seriously concerned […]

What is Systemic Risk?

Systemic risk is risk to the “system” in some way. In the financial services world, it is often defined in one of two ways: The risk of contagion, where failure of an entity leads to distress or failures of others [micro prudential] The risk of an event that can trigger serious consequences for the real economy. […]

Modelling one side of a two-sided problem

Ah models, my old friends. You’re always wrong, but sometimes helpful. Often dangerous too. A recent article in The Actuary magazine addressed whether “de-risking in members’ best interests?”  I say “recent” even though it’s from August because I am a little behind on my The Actuary reading. In the article, the authors demonstrate that by […]

Actuarial sloppiness

An actuary I know once made me cringe by saying “It doesn’t matter how an Economic Scenario Generator is constructed, if it meets all the calibration tests then it’s fine. A machine learning black box is as good as any other model with the same scores.” The idea being that if the model outputs correctly […]

Open mortality data

The Continuous Statistical Investment Committee of the Actuarial Society does fabulous work at gathering industry data and analysing it for broad use and consumption by actuaries and others. I can only begin to imagine the data horrors of dealing with multiple insurers, multiple sources, multiple different data problems. The analysis they do is critically useful […]