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The Actuary The magazine of the Institute & Faculty of Actuaries

Solvency II and climate change feature at ASTIN

ASTIN (the non-life section of the International Actuarial Association) held its 38th Colloquium in Manchester in July. There were two key themes, Solvency II and climate change, and the papers presented were wide-ranging, both in approach and topic.

Alongside the technical aspects of the meeting, delegates had the opportunity to see many of the interesting parts of Manchester, including the Imperial War Museum North and the Victorian Town Hall.

High spots
The keynote speaker, Julia Sligo, highlighted the many different ways that climate change can be assessed and predicted. This clearly has major implications for non-life insurers, in terms of increasing volatility of claims experience, and she helpfully showed how insurers are reacting to this.

Professor Christian Genest presented his new research on extreme value dependence. This covered improved ways of deciding which copula to use when modelling extreme events. An interesting panel session allowed four experts from different countries (Petra Wildemann, Arne Sandstrom, Annette Olesen and myself) to present their hopes and fears for Solvency II. Standard and Poor’s presented its enterprise risk management approach – how it assesses insurers’ risk management processes. This is important for the profession, as we move forward to develop an international risk management qualification.

The conference was multi-track, and I attended the following sessions related to modelling:
>> Modelling the claims development result for solvency purposes, by Michael Merz and Mario Wuthrich. This paper looked at modelling changes in ultimate claims estimates over one-year periods, which is interesting for Solvency II.
>> Capital allocation by percentile layer, by Neil Bodoff. There seems to be no single method for allocating capital to lines of business, and this approach looked at each percentile on the curve and allocated capital in layers using a loss exceedance probability.
>> Give credit where credit is due: operational risk goes Bayesian, by Dominik Lambrigger, Paul Shevchenko and Mario Wuthrich, covered how to combine internal and external operational risk data in a way that reflects the variability in the information. Presenters had been asked not to assume delegates had read the papers in advance, and encouraged the audience to read the papers following the conference.

I enjoyed the other presentations too, and found that the conference improved my understanding of a lot of technical issues. It was great to hear such good discussion and meet so many actuaries from different countries. The next ASTIN Colloquium will be in Finland in June 2009.