Asset allocation, regulatory issues and sustainability are three key topics for an insurance company. We will take a fresh look on them during the summer school on `Insurance Innovations’ and thereby show that innovations in financial and insurance mathematics have the potential for creating innovations in the insurance industry.
We will in particular present new concepts for
- long-term investment strategies,
- sustainable portfolios with a focus on life insurers,
- the retirement phase of pension products,
- modelling the balance sheet of an insurance company,
- the calculation and back testing of the solvency capital requirement,
- and a survey on chance-risk-classification of pension products in real application.
Our fresh look will be based on the MCA-concept, i.e. every topic will be well Motivated (by e.g. simple examples or historical aspects), the underlying Concepts will be presented in a rigorous but accessible way, and finally Applications in the insurance industry will be presented. These range from dealing with simple toy examples to real-world applications. Finally, it is our aim to enhance the actuary’s toolbox for creating innovations on his/her own.
Crucial techniques in continuous-time portfolio optimization are the martingale method and the stochastic control approach. While these methods are often presented in a highly technical way in standard literature, we choose a swift and way in deriving the necessary tools, give the intuition behind them and solve examples in a step-by-step way. This will enable the participants of the summer school to set up portfolio problems and to solve them on their own.
As entering a pension scheme can be seen as a long-term investment strategy, we will survey classical long-term investment problems such as optimal life-time consumption by Merton and the growth optimal portfolio by Breiman and Kelly. As an innovation we combine the concept of value preserving strategies with the minimal market model by Platen. We underline its usefulness by presenting its empirical performance.
Sustainable assets (as e.g. in the sense of ESG-compatible ones or structural investments for preserving the environment) form an important asset class that is tailored for life insurers as they can invest in illiquid or long-term positions. We present and solve various portfolio problems under sustainability constraints and climate dependent regulations.
Optimal consumption plans from continuous-time portfolio problems will be used to motivate innovative ways of payment construction in the retirement phase of pension products.
We will then switch to regulatory aspects. Here, we start by presenting a way to construct the balance sheet of a synthetic insurance company. It will allow us to present explicit applicationswhen calculating the solvency capital required (SCR) via the least-squares Monte Carlo method in efficient ways, also including the use of neural networks. Further, by back testing solvency data from real insurance companies, we demonstrate a surprisingly high difference between the actually calculated SCR values by internal models or by the standard formula.
Finally, we shed a light on the conceptual problems underlying the chance-risk classification of pension products, its continuing evolution and improvement and its actual work in industrial application over the last ten years.
