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The Actuaries

An actuary is a person professionally trained in the mathematics of insurance such as the calculation of premiums, reserves, life expectancy and other values. Actuaries apply the methods of probability and statistics to insurance, pension, investment, financial management and demography. Applying mathematical methods for formulation and analysis of the complicated business problems, actuaries evaluate individual and corporative risks and propose sound and financially balanced insurance and pension schemes.


Actuaries and Law

... Science should be a guiding star for legislator rather than a mean of his enslavement. Contrary to the phrase "numeri regunt mundum" (numbers govern the world), the actuaries should always avoid the intention to dominate in the world of politics. Alike the heart is guided by causes unknown to the brain, the politics may be guided by causes unknown to the science. In his activity, legislator may be forced to obey to some reasons more important than just scientific accuracy; if he has to neglect sometimes the latter, it is still important to conserve a clear understanding of the urged sacrifices to politics to minimize them and to come back to the right principles as soon as possible.

(Quoted from the article by Cheisson "Actuaries and Law", Insurance review, number 11, November 1897, p. 648-652; number 12, December 1897, p. 737-742.)


Actuaries and Amendment of Regulation

At the end of 1983, the Belgian Ministère des Affaires Economiques suggested that companies should undertake a thorough reform of the automobile third party liability tariff. The U.P.E.A. (Professional Union of Insurance Companies) appointed a study group, under the chairmanship of the author of this book, whose main task was to recommend a new tariff structure to the control authorities.

The study group was able to persuade six of the largest companies to make available statistical data concerning their whole portfolio. Subsequently, a tape containing information relating to over 750000 policyholders, observed in 1982, was created.

(P. 193 of the book by Jean Lemaire, "Automobile Insurance. Actuarial Models", Kluwer, 2-d printing, 1996.)



Actuaries and Solvency of Insurers

...The insurance industry is controlled by special legislation and is subject to public supervision in all industrialized countries. A common practice is to check the solvency periodically, usually annually. If it is proved that the insurer can, with sufficient probability, maintain his economic capability up to the next check point, he is declared "solvent", otherwise the supervisors have the duty and the power to require immediate remedial measures, or, if such turn out to be ineffective, to wind up the business.

(T. Pentikäinen, "On the Solvency of Insurers" In: Classical Insurance Solvency Theory, Ed. by: Cummins J.D. and Derring R.A., Boston etc., Kluwer, 1988, pp. 1-48.)



Actuaries and Management

...Probably much too often mere intuition has guided the behaviour of management. Often many "experienced" managers take a suspicious and deprecatory stand on theoretical considerations, which they easily pass over with short comments on their lack of practical value. However, neglecting to clearly formulate the problems and the principles of policies does not mean that the manager in question does not, in fact, follow some strategy. On the contrary, every way of decision making, even neglecting to make a decision, is some kind of strategy. The difference is only that the strategy of "practical men" can be a random product of old traditions, more or less reliable intuitions, etc. without any clear formulation and analysis of the various alternative policies.

(T. Pentikäinen. "A model of stochastic-dynamic prognosis. An application of
risk theory to business planning", Scand. Actuarial J. 1975: 29-53.)



Actuaries and Solvency II

Solvency II is the updated set of regulatory requirements for insurance firms that operate in the European Union.
The rationale for European Union insurance legislation is to facilitate the development of a Single Market in insurance services in Europe, whilst at the same time securing an adequate level of consumer protection. The third generation Insurance Directives established an "EU passport" (single licence) for insurers.

Solvency II will be based on economic principles for the measurement of assets and liabilities. It will also be a risk-based system as risk will be measured on consistent principles and capital requirements will depend directly on this.



Actuaries and Dynamic Financial Analysis (DFA)

The idea of Teivo Pentikäinen to apply the enhanced modelling of the insurance process and to "repeat the simulation process for different strategies", in particular "to find more or less intuitively suitable values for strategy parameters" is the keystone of a methodology which flourished recently under the name of Dynamic Financial Analysis (DFA). DFA is close to the similar topics known under other names, like Dynamic Risk Modelling.
It is generally accepted that DFA is neither an academic discipline, nor a single economic or mathematical concept or method. It may be described as modelling an entire non-life operation on a cash flow basis for solvency testing by a comparison of different management strategies and economic scenarios in terms of risk and return. This comparison is carried on predominantly by means of simulation.



Actuaries and Financial Economics

"The finance and insurance industries have much in common. The different tools these industries provide their customers for managing financial insurable risks rely on the same two fundamental concepts: risk pooling and risk transfer. Further, the valuation techniques in both financial and insurance markets are formally the same: the fair values of a security and an insurance policy are the discounted expected values of the cash flows they provide their owners. Scholars and practitioners recognize these commonalties. Not surprisingly the markets have converged recently; for example, some insurance companies offer mutual funds and life insurance tied to stock portfolios, and some banks sell annuities. These developments require that insurance company managers, owners, and customers understand financial markets and their relation to insurance markets...

Understanding finance and insurance, and how they are related, begins with financial markets. ... Financial assets and derivatives have a variety of sources. There are products from different sources that are practically identical: for example, some banks issue annuities to individuals just as life insurers do. Some life insurance companies issue guaranteed interest contracts to pension plans, in competition with banks".

From the book: H.H. Panjer (editor) et al Financial Economics: with Applications to Investments, Insurance and Pensions. The Society of Actuaries // 1998, 549 p. ISBN 0-938959-48-4.



Actuaries and Financial Analysts

Financial analysts are affinitive with the Actuaries. Broadly speaking, financial analysts help people decide how to invest their money. They work for banks, insurance companies, mutual funds, and securities firms. They learn more about the firms in which they want to invest. Then, they suggest buying or selling that firm's stock.
Although there are no formal qualification criteria, there are often regulatory requirements relating to the profession. The qualification for financial analysts includes the modelling ability in finance an banking based on the extended probabilistic background.
Financial analysts in Russia are united in The Guild of Investment and Financial Analysts (GIFA; GIFA was found in 1998 as a non-profit union of Russian investment professionals with mission to assist development of the Russian capital market and introducing modern standards of professional qualification and professional conduct in the investment and financial areas.



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Laboratory is headed by Vsevolod K. Malinovskii, Ph.D., D.Sc.



Actuarial consulting

Laboratory supplies professional consulting on methodology of actuarial computations and related problems in life, non-life insurance, reinsurance and pensions.
Among the consultancy projects done by the Laboratory are the



Modern Actuarial Risk Theory: multivariate analysis and Generalized Linear Model (GLM).
The book "Modern Actuarial Risk Theory" by R. Kaas, M. Goovaerts, J. Dhaene, M. Denuit was translated in Russian and published recently under the editorship of V.K. Malinovskii.



Dr. Michel M. Dacorogna, Member of the Senior Management of SCOR Group, held in April 23-24, 2008, the seminar entitled "Economics of Risk in Insurance".
Seminar took place in Moscow (Smolenskaya str., 5, the "Golden Ring" hotel) and comprised four talks:
1. The Price of Risk in Insurance.
2. Capital and Capital Management.

3. Adding time diversification to risk diversification.
4. ERM (Enterprise Risk Management), Towards an Holistic View of Risk Management.
Seminar was organized by the Association of European Businesses in RF with the participation of the Laboratory of Actuarial research of Finance Academy and financial support of the Representative offices in Moscow of Gen Re and of SCOR.



The 38th International ASTIN Colloquium was held in Manchester, UK, from Sunday
13 July to Wednesday 16 July, 2008.

It was a memorable event, professionally and socially, held in the heart of the United Kingdom. Participants enjoyed the warm hospitality of the British Actuarial Profession.



The 39th International ASTIN Colloquium was held in Helsinki, Finland, from Monday
1 June to Thursday 4 June, 2009.

Participants were particularly interested in that event dedicated to the memory of Teivo Pentikäinen whose contribution to the mathematical modelling of the insurance process is known worldwide.



Reflexivity in competition-originated underwriting cycles.
This paper is an attempt to shed new light into the causes of the competition-originated
underwriting cycles. Besides an agressive company slashing price while seeking for
advantageous market share, the competition-originated insurance cycle is led by other
participants' year-to-year competition for revenue and market share framed in the concept
of reflexivity. In the framework of multi-period Lundberg-type game model of insurance
process, this paper addresses quantitative analysis of certain reflexive rationales of the
competition-originated insurance cycles.




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