Life insurance risks: Observations on Solvency II and the modeling of capital needs

Many of the core ideas of Solvency II are drawn from the realms of finance and investing. These may or may not extend naturally to the domain of insurance risk. Tools are increasingly available that enhance our ability to develop forecasts and to critique these forecasts as part of the capital management, business planning, and decision-making process. There is an explosive growth in potential applications of data analytics, predictive algorithms, and behavioral modeling to challenges related to insurance risk. This paper describes several key areas that can serve as building blocks for a new analytical framework.