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…
My son recently came home from school excited about a number guessing game they’d played in class. The rules were simple: one child thinks of a number, and then the class takes turns asking questions about it. The first child to identify the exact number wins. Before reading on, pause and consider: What strategy would…
A fascinating 2016 paper by Cirillo and Taleb on predicting major conflicts remains deeply relevant today. Their key insight? We consistently fool ourselves about the predictability of extreme events. Some sobering findings: Most striking? They quote an 1860 assessment celebrating an “unprecedented” 40-year peace and declining warfare… right before the bloodiest century in human history.…
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:…
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…
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…
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…
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…
