Why insurers are turning to the least squares Monte Carlo modelling technique

The least squares Monte Carlo method of stochastic modelling is fast being adopted by insurers due to its simplicity and accuracy

Monte Carlo

The challenge of calculating Solvency II risk capital for a liability portfolio with any kind of complexity cries out for a proxy method. Complex liabilities can only be valued accurately using a stochastic approach, especially where there are embedded options, management actions or other events to take account of. In fact, any degree of accuracy requires a ‘nested stochastic’ approach – a set of ‘inner’ stochastic simulations for market-consistent pricing of liabilities within an ‘outer’ set of

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As the world constantly evolves and changes, so too does the life insurance industry, which is preparing for a multitude of challenges, particularly in three areas: interest rates, regulatory mandates and technology (software, underwriting tools and…

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