Actuaries and Investment
For some time now, the DAV has been pursuing the goal of closer links to mathematicians working in investment and banking. Simultaneously, financial mathematics topics have become increasingly important for the day-to-day work of actuaries. Whereas, in the past, actuaries' work was dominated more by classic, liability-oriented topics and functions, modern actuarial duties and responsibilities have expanded considerably, especially as a result of international accounting standards. And this process is by no means at an end: starting with capital market-related products such as unit-linked life insurance, extending to tracker-fund-oriented tariffs, hybrid products and variable annuities as well as the current, extremely complex situation on the capital markets, investments are moving increasingly onto the radar of questions and estimations that were, originally, of a purely actuarial nature.
Accordingly, the DAV is now dealing with the following investment-related topics:
- Informing and educating actuaries and financial mathematicians in all topics concerning investments and the investment industry;
- Supporting actuaries in their day-to-day work in the form of notes and guidelines on investment-related topics and their impact on actuarial activities;
- Producing opinions and statements on current topics concerning investments and the investment industry;
- Assuring the transfer of know-how between the specialist committees of the DAV on investment issues and their interface to underwriting and insurance;
- Establishing a technical internet platform to foster and support communication and knowledge transfer (a wiki).
Investment Committee
In 2008, the DAV Executive Board established an independent Investment Committee. This committee deals with cross-divisional investment issues. It focuses on the perspective of the actuary or financial mathematician rather than that of the pure capital investor. The focus is on a predominantly strategic and overarching view.
The specific objectives of the committee's work are
- Informing and educating actuaries and financial mathematicians on all topics relating to investments and the investment industry
- To support actuaries in their daily work by providing information and guidelines on investment-related topics and their impact on actuarial activities
- Supporting the DAV Executive Board by issuing statements on current issues in the field of capital investment and the investment industry
- Ensuring the transfer of know-how between the specialist committees on investment topics and their interfaces with actuarial practice
In addition to this cross-sector approach, the Investment Committee also takes into account sector-specific features with regard to their influence on investments. This is done in close coordination and cooperation with the respective other specialist committees of the DAV. In addition, the Investment Committee supports the specialist committees in general with all questions relating to capital investment.
Working Groups of the Committee
The committee has set up the following active working groups to deal with the wide range of topics in the area of investment:
Under the leadership of Dr Marc Küther and on behalf of the Investment Committee, the working group on investment topics in the Responsible Actuary's explanatory report has been preparing an annual results report since 2012 with a selection of specific investment-related topics that the Responsible Actuary could address in his explanatory report for the reporting year, depending on their relevance to the individual company.
The aim of the working group is to develop an aid for actuaries that highlights the opportunities and risks associated with capital market topics in addition to regulatory developments. In addition, possible approaches as to how corresponding aspects could be considered and implemented in practice are to be highlighted.
The Practical Use of Alternative Fixed Income and Equity working group of the Investment Committee aims to develop practical guidance for the use of alternative investment instruments in the insurance context. Based on the working group's existing two-part report, which dealt with infrastructure and private equity, among other things, private debt/placements, real estate and hedge funds are also interesting investment alternatives in the universe of illiquid assets.
The aim of the working group is to develop actuarial support for the plausibility check of investment assumptions for various asset classes. Best-practice approaches are to be collected or developed on how the assumptions on the future development of asset classes - usually reported by the investment side - can be checked for plausibility from an actuarial perspective. The focus is initially on the asset classes typically represented at insurance companies. Capital market and reinvestment assumptions, underlying regulatory information, aspects of strategic or tactical asset allocation and possible assumptions on returns, costs and performance are to be analysed. Risk management aspects may also play a role. The focus here is not on forecasting market developments, but on providing methodological tools to help scrutinise investment assumptions for actuarial models (e.g. for ALM). A past-orientated approach, such as backtesting or benchmarking, could also play a role here. This can be particularly helpful for actuaries who are new to this topic and for SMEs in order to better assess the asset-side investment assumptions before they are used in the models.
The working group examines the question of how climate risks and sustainability risks for investments can be quantified, for example (but not exclusively) in the context of Solvency II. As part of this working group, best-practice approaches are being developed with which both physical and transitory climate risks for investments can not only be identified but also quantified, for example as part of scenario analyses. Particular attention should be paid to the immediate feasibility and transparency of the underlying assumptions to ensure the highest possible level of comparability. The discussion papers and statements issued by the EIOPA should be the main guidelines here, as well as other established approaches and frameworks, e.g. from TCFD, PRA or NGFS.
The working group is responsible for the Investment Committee's multimedia formats. This means that it is responsible for the development, maintenance and management of all digital media content related to the activities of the Investment Committee. This includes videos, podcasts, documents and webinars. The working group ensures that these formats are technically flawless, meet the content requirements and are published on the appropriate channels.
The Qualification Working Group is responsible for the independent quality assurance of the specialised knowledge examinations in investment and financial mathematics. Its tasks include, in particular, checking and approving the corresponding draft examinations with regard to content, level of difficulty, scoring and suggested solutions. The working group is also involved in the regular review of the underlying learning objectives to identify any need for adjustment or updating.
The working group is revising the content of the technical guideline “Modeling of Investments” dated September 27, 2021. The goal is to update the guideline in light of recent regulatory and accounting developments—particularly in the context of Solvency II.
