J, in an earlier post of this thread I mentioned optionalities involved in insurance products and their impact on the "optimal" duration strategy, i.e., surrender optionalities for the policyholder introduce a negative convexity (i.e., policyholders will repay the policy if market rates are higher than his guaranteed rate, the option the policyholder has is in the money). This negative convexity could / should (?) be hedged with payer swaptions. Unfortunately, there are usually several options embedded in insurance contracts like options to extend the contract at the current pricing, guaranteed annuity options (GAO) etc. Most insurance companies did / do not fully price these options in their contracts, either due to competitive pressure ("others do not charge for these options, we have to be competitive, we have volume targets (!)" or they just do not know / understand the value of these options. Risk management departments, driven by regulatory developments (like Solvency II), now focus on the valuation of these embedded optionalities. Also, investment departments seem to more and more take care of these options in their strategic asset allocations.

dostojewski,very interesting. is that book you got quite comprehensive to give a clear big picture?

J, I just started reading... At first sight it seems to be not very quantitative but should give an overview of the various products, their pricing (as I said not too many formulas) and reserving policies. I can give a more detailed feedback in a few days / weeks if you want.

why are the reserving policies important? What are reserving policies? Sorry I am not in Act. field.

Quote Although I have about 6 years expercience in ALM, my focus has always been the investment side of the equation. I do not really understand more than just the basic actuarial concepts and, as pointed out earlier, I believe that the further integration of financial theory and actuarial theory will dramatically change ALM for insurers.BTW: I just bought "Modern Actuarial Theory and Practice" (Booth).Yes you are right, claiming to have studied textbooks on your CV isn't the best way to go. I just feel that its too much time for a person to spend on an actuarial designation, unless you feel 100% that this is your career; Its a LOT of effort and a huge commitment to be able to achieve your designation and ending up 70% of the material being irrelevant to ALM (and sometimes just downright boring). That being said, you are correct that there is a need for actuarial practice to integrate modern financial theory but it'd take more than a simple FSA to do that.So if you feel that in the next 5-10 (depend on your pass rate) years you can spend 100-200hrs of study time every 6months (Spring/Fall sittings), feel free to embark on your new career!My suggestion? Try out the 1st exam, which should cover the basic probabilities/statistics, to see what I mean.P.S. I haven't personally read Booth yet, still gotta work my way up with the statistics!

QuoteOriginally posted by: Jwhy are the reserving policies important? What are reserving policies? Sorry I am not in Act. field.Just very short: The technical reserves represent the principal liabilities of an insurance company. The are established to enable the company to meet and administer its contractual obligations to policyholders. In the end, the amount of reserves determine the assets you need to cover them (in order to comply with regulatory requirments, e.g., coverage ratio assets versus liabilities should not be lower than 125%) and the residual assets (if any) could serve as a risk buffer (i.e., your risk capacity). In certain countries the regulator asks you to reserve more if, e.g., you do not "cashflow match" your liabilities with government bonds.

QuoteOriginally posted by: QuantabeQuote Although I have about 6 years expercience in ALM, my focus has always been the investment side of the equation. I do not really understand more than just the basic actuarial concepts and, as pointed out earlier, I believe that the further integration of financial theory and actuarial theory will dramatically change ALM for insurers.BTW: I just bought "Modern Actuarial Theory and Practice" (Booth).Yes you are right, claiming to have studied textbooks on your CV isn't the best way to go. I just feel that its too much time for a person to spend on an actuarial designation, unless you feel 100% that this is your career; Its a LOT of effort and a huge commitment to be able to achieve your designation and ending up 70% of the material being irrelevant to ALM (and sometimes just downright boring). That being said, you are correct that there is a need for actuarial practice to integrate modern financial theory but it'd take more than a simple FSA to do that.So if you feel that in the next 5-10 (depend on your pass rate) years you can spend 100-200hrs of study time every 6months (Spring/Fall sittings), feel free to embark on your new career!My suggestion? Try out the 1st exam, which should cover the basic probabilities/statistics, to see what I mean.P.S. I haven't personally read Booth yet, still gotta work my way up with the statistics!Thanks for your remarks, QuantabeI defenitly do not feel like spending the next 5 to 10 years studying for the FSA. I am not willing to dedicate more than 4 years; maybe I could go for the ASA (since I do not want to become an actuary, 5 to 10 years of studying is way to much). I think I will accept your advice and try out the first exam. Thanks again for your tip.