An Introduction to the Benefits of Optimization Models for Underwriting Portfolio Selection

Kreuser Jerome~Lane Morton, États-unis

The use of optimizing models for portfolio selection and construction in the context of insurance is relatively new. Investment portfolio managers regularly rely on optimization, but underwriters are much more likely to use good old fashion trial and error, with some admittedly quite sophisticated, simulation techniques to developing underwriting portfolio strategies. The unique characteristics of insurance risk, e.g. long tails, one sided correlations etc, did not lend themselves to early optimization models but, certain technical breakthroughs have advanced optimization modeling and insurance risk is now a potentially important application. Moreover, once adopted, optimization techniques have considerable informational benefits over simulation.The purpose of this paper is to illustrate these benefits. We do this in two ways. First by tracing out the numerical implications with a simple practical application; second, by introducing the algebra necessary to extract the benefits in more general and complicated cases. The techniques have been successfully applied in several large scale real situations and further technical details will be forthcoming in subsequent papers.
Date: 2 June - Time: 10:30 to 12:00 - Room: 251
Theme: 9.A. Various topics