Stochastic risk management for actuarial science

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Since the financial crisis that began in 2007, the solvency of financial service providers has become an urgent area of investigation. The Canadian insurance industry came through rather less damaged than elsewhere. One important reason was the move towards more stochastic risk management initiated a decade ago. Still, market pressures have often resulted in products and solvency challenges that are not recognised until the risk exposure is already substantial. Scientific risk management techniques developed for banking do not always transfer easily to the additional challenges created by the longer, more uncertain products of the life insurance industry, especially where these products combine market and insurance risks. A classic example is a life insurance contract with insurance and investment components, with embedded financial guarantees.