How should actuaries think about time horizons and frequencies of events? Solvency II capital requirements focus on a one-year horizon, but the regime also asks insurers to look beyond that time frame. With the upcoming COP26 and increasing discussions around sustainability, actuaries may also be asking how to integrate the gradual and, more erratic, dimensions of climate risk consistently into insurance ERM frameworks.
The traditional way to think about uncertainty is from a “time domain” perspective. How do, for example, yield curves, investment returns, mortality rates, lapses, or insurance claims develop over time? However, additional valuable insights can be obtained by taking a “frequency domain” perspective. This can provide actuaries with another type of lens to analyse and model how uncertainty plays out at different horizons (for example, in the next quarter, the next year or the next decade) and frequencies (in terms of, for example, daily, monthly or annual variability).
In this webinar, we provide an intuitive introduction to frequency domain concepts through practical examples including:
- How to integrate short- and long-term capital models in an efficient and consistent way?
- How to capture the gradual and erratic dimensions of climate risk in scenario modelling?