Vacatures in het Actuariaat

Proxy models: uncertain terms

Bron: The Actuary - 03 maart 2021

Accurate proxy models form a key element of life insurance companies’ internal models, and measuring and correcting the errors in proxy models has become a key area of focus for companies and the regulator. We analysed proxy model errors for the purpose of developing an adjustment to final capital requirements, and found that the average error of the proxy model in a range of scenarios around the 99.5th percentile of the loss distribution is a surprisingly good estimate of the impact of the errors on capital requirements – even when the errors get quite big.

Measuring proxy model errors

Proxy models aim to mimic the results of underlying cashflow projection models. The quality of these proxies can be measured simply by comparison to the results from the cashflow model. This ‘out-of-sample’ testing forms the bedrock of proxy model validation, with companies typically testing proxy models against anywhere between 100 and 500 scenarios. Validation scenarios encompass a wide range of scenarios, from stresses to a single risk (say equity values) to more complex scenarios with variation in all risks.

It is not just the absolute values of the proxy model errors that will result in a poor estimate of the solvency capital requirement (SCR).

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