- To provide a consistent framework for identifying and quantifying the risk drivers underlying investment guarantee products. This is a critical area of risk for life insurers; most modern failures or downgrading has come from the aggregation of guarantee risk.
A case study model portfolio will be created to better understand, assess and describe the various types of risks and their inter-relatedness. These include financial risks, longevity risk, basis risk, policyholder behavior, regulatory, and operational risk.
- To develop more effective hedging strategies for complex guarantees, including the use of semi-static hedging, partial hedging, natural hedging and constant proportional portfolio insurance. Our model portfolio will be used to illustrate the impact of the various strategies and their strengths and weaknesses for different products.
- To develop and disseminate improved stochastic models of longevity risk, as well as methods for hedging or mitigating these risks where appropriate. This will be an increasingly important topic as lifetime guarantee benefits achieve further market penetration.
- To provide a framework for measuring and managing systemic risk, as the recent economic meltdown has provided a new perspective on risk management. It is no longer sufficient to just manage risk in isolation; a more prudent strategy is to adopt an integrated risk management that also takes into account systemic risk. Furthermore, an innovative state-dependent risk management strategy will also be proposed.
- To train highly qualified personnel. Some will take the new science to industry, achieving valuable technology transfer. Others will seek academic positions, and will be placed to continue the work of developing and disseminating applied risk management solutions for the actuarial profession. The research team we have assembled will be extremely attractive to the best and the brightest students and other research collaborators.
- To promote better communication and collaboration among academics, practitioners and regulators, and to bridge the gap between theory and practice
- through publications in professional and academic journals in actuarial science including the NAAJ, ASTIN Bulletin;
- through regular podcast organized at the University of Waterloo and broadcasted on the website dedicated to this project.
- through a series of practice oriented reports.