A reprise of a panel presented in the past as part of a track on “Appointed Actuary Topics”

Still important to actuaries in understanding valuation and financial solidity

Although less apparently so, this material is also relevant in the broader topic of this seminar: Ratemaking

“Appointed Actuary”

Appointed by, and reporting to, the Board

To opine …

• on loss reserves,


• and on the rest of the balance sheet

Has the insurer prudently provided for risks between now and payment?:

• Amount of net payments


• Timing of Payments


• Asset Value Changes


• Interest Rate Changes

"Prudent":

• Wisdom in handling practical matters


• Care in regard to one’s own interest, provident


• Judging in advance the probable results of one’s actions

We will see how an insurer can select asset portfolios, prudently, judging advance the probable outcomes.

This will consider the risks and returns of:

• the individual assets


• the insurer’s portfolio


• the insurer as a whole

BUT...

What does all of this portfolio theory stuff really have to do with ratemaking?

By selecting a desired portfolio of assets, an investor has compared the worth of every potential asset to its price in the market.

Analytically, this is the same task as evaluating the price of every asset.

The way we apply Modern Portfolio Theory ("MPT") to buying and selling investments has a close analogy in picking the optimal portfolio of insurance risks to underwrite,

Or in other words, RATEMAKING