Trending Actuarial Topics in Europe

The COVID-19 pandemic, low interest rates and the digital economy are hot topics in insurance Mohamed Baccouche

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Mohamed Baccouche
Mohamed Baccouche

Actuarial science is an exciting career choice with professional trends in the sector mirroring broader societal challenges. It is a special time for the actuarial community right now. Let me explain why.

“Actuarial Science” of the Pandemic

Prior to COVID-19, actuarial models—and even regulations—were focused on mortality as a key risk in a pandemic event. This doctrine was shaped by the 1918 influenza pandemic when life expectancy was 25 years lower than today and globalization was embryonic. Given this focus on historical data, many actuarial models have proven to be inappropriate in predicting the consequences of COVID-19:

  • Progress in health technology and practices, as well as political intolerance for deaths in most countries, led to pandemic-related mortality predictions being far too pessimistic.
  • Instead, globalization led to “event cancellation” and “business interruption” being the main sources of insurance claims. These claims have been significantly inflated by the expectations of customers, public opinion and, in some cases, legislators, to cover losses beyond contractual clauses.

Lessons are to be taken from this experience. Actuaries should consider embedding more “foresight analysis,” notably for rare event and long-term trends. They therefore need more—not less—expert judgment in their models while strengthening governance to ensure adequate outcomes.

On the other hand, stochastic calculation infrastructure and data science capabilities, built chiefly to meet Solvency II requirements, have proven to be extremely useful in managing the crisis successfully from an actuarial point of view. As a result, actuaries can be proud of their contribution to the resilience of the insurance sector during the crisis.

Actuarial models will be significantly challenged post-COVID-19:

  • Historical data, such as claims and premium triangles, lapse rate, disability incidences and the mortality qx, have been materially disrupted. The actuarial community needs to dedicate a lot of energy in the next decade to determine appropriate modeling for the impacts of COVID-19.
  • The subsequent economic disruption and political turmoil, in addition to massive investment in many health systems, will have material impacts on mortality, interest rates and cost of risks. Actuaries, therefore, need to adapt their models to ensure their post-COVID-19 actuarial predictions are successful.

Low Interest Rates

The low interest rate environment is also a trend that all actuaries operating in European markets need to understand, especially in the life sector. Indeed, over the last couple of decades, we have experienced a consistent decrease in interest rates and have even dropped significantly below zero for swap rates in the Eurozone and Switzerland. This is a trend not only in Europe, but in many markets globally, and it has been a massive challenge for guaranteed business:

  • Guaranteed business (also known as “general account,” “with-profit,” “traditional business” or “annuities,” depending on the market) is expected to remain by far the most preferred product for customers in Europe, accounting for about 80 percent of all European life insurance and pension business.
  • The regulatory cost of risky assets backing guaranteed business has increased under Solvency II, a regulation based on a market-consistent framework. The regulatory cost and economic risk have led several players to reduce their exposures to equity or interest rate volatility. In the long term, this will lead to questions about the viability of guaranteed products.

To overcome these challenges, innovative solutions are emerging. An example is newcomers building models based on credit underwriting capabilities that allow additional spread to be generated within a risk tolerance technique similar to large insurance risk, even if the spread risk is classified within financial risks. This represents a fantastic opportunity for life actuaries to help adapt the business model of “general business” in Europe despite a sustained low interest rate environment.

Digital Economy

The digital economy has three types of consequences for the actuarial community:

  1. It creates a huge opportunity for actuarial model enhancement with more data and greater computing capabilities. This also raises the historic question of actuarial fairness—the ethics of the most sophisticated algorithms and how well the model outputs can be explained to the customers, regulators, distributors or management. An exciting future is ahead for actuaries and data scientists.
  2. The insurance market is growing. The most important example is cyber risk insurance, which is already well-developed in the United States. The next major catastrophe (CAT) event could be a major cyberattack rather than another Hurricane Katrina. Cyber risk is growing rapidly, and property and casualty (P&C) actuaries need to closely manage data quality, risk exposure and the appropriateness of historical data to define pricing and reserving. In fact, similar to pandemic risk, actuaries should not price cyber risk using historical data since the future will look nothing like the past. It will require more expert and actuarial judgment. Trends in technology, media, autonomous vehicles, regulations, social media and criminal networks will need to be understood, and significant technological knowledge will be required. Armed with this data and knowledge, actuaries will be able to develop a robust strategy around cyber risk—another fascinating topic.
  3. The digital economy also is leading to rising customer expectations in terms of claims and underwriting management with regard to accessibility, understandability, timeliness and flexibility. These customer and regulatory trends have impacts on pricing, reserving and risk monitoring.


Actuaries are on course for an exciting and fast-paced decade ahead with several new and emerging business trends. They will need to adapt to evolving regulatory trends, such as International Financial Reporting Standard (IFRS 17) and Solvency II revisions, General Data Protection Regulation (GDPR), and Product and Oversight Governance, to mention a few.

Who knows what else the future might hold for the actuarial community? Congratulations, you have chosen a meaningful and sustainable career!

Mohamed Baccouche is group chief actuary at Athora. You can find him on Twitter @BACCOUCHE_med.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

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