A recent survey conducted by US-based Tillinghast has concluded that more than two thirds of life insurance companies are using stochastic modeling techniques to evaluate investment and other risks for many lines of business.
Stochastic modeling anticipates random elements in predetermined environments and has been an integral part of stock market analysis for a number of years. The study noted that CFO’s found this type of modeling particularly useful to evaluating credit risk.
Jack Gibson, president of its Tillinghast’s North American branch said, stochastic modeling offers a depth of information that is unmatched by traditional approaches, putting companies in a better position to explore competitive product design alternatives and evaluate a wider range of options to mitigate their risk exposure.
Leading-edge companies are taking this a step further, enhancing the sophistication of existing stochastic models to respond to the increased complexities in today’s life insurance products, added Mr Gibson.