Efficient Projections

Abstract

We consider projections of multi-state with-profit life insurance policies where dividends are assumed to have a certain structure, giving access to a system of differential equations that provide insurance quantities of interest. These differential equations are computationally impractical in situations where insurance risk and financial risk are not independent, which are situations of particular interest due to the possibly severe combined effect on the insurance portfolio. We propose to use a smaller system of approximating differential equations, by reducing the state-space of the insurance policy and the number of policies.

Keywords: With-Profit Insurance, Multi State Life Insurance, Lumping, Projections