Actuarial-consistency and two-step actuarial valuations: a new paradigm to insurance valuation

Barigou, Karim;Linders, Daniël;Yang, Fan
(2022) Scandinavian Actuarial Journal — Vol. 2023, n° 2, p. 191-217 (2022)

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Authors
  • Barigou, Karimorcid-logoUCLouvain
    Author
  • Linders, Daniëlorcid-logoFaculty of Economics and Business, University of Amsterdan, Amsterdam, Netherlands;
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  • Yang, FanDepartment of Statistics and Actuarial Science, University ofWaterloo,Waterloo, Canada
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Abstract
This paper introduces new valuation schemes called actuarial-consistent valuations for insurance liabilities which depend on both financial and actuarial risks, which imposes that all actuarial risks are priced via standard actuarial principles. We propose to extend standard actuarial principles by a new actuarial-consistent procedure, which we call ‘two-step actuarial valuations’. In the case valuations are coherent, we show that actuarial-consistent valuations are equivalent to two-step actuarial valuations. We also discuss the connection with ‘two-step market-consistent valuations’ from Pelsser, A. & Stadje, M. [(2014). Time-consistent and market-consistent evaluations. Mathematical Finance 24(1), 25–65]. In particular, we discuss how the dependence structure between actuarial and financial risks impacts both actuarial-consistent and market-consistent valuations.
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  • Université Claude Bernard Lyon 1

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Barigou, K., Linders, D., & Yang, F. (2022). Actuarial-consistency and two-step actuarial valuations: a new paradigm to insurance valuation. Scandinavian Actuarial Journal, 2023(2), 191-217. https://doi.org/10.1080/03461238.2022.2090272 (Original work published 2022)