Can You See the Quality of a Financial Risk?

On this common ASTIN-AFIR day, I should like to address a topic of equal importance in insurance and finance

• Performance measurement
• Performance prediction

Performance is measured by appropriate ratios Insurance: Loss ratios (with or without costs) Finance: Return rates (on investment, on equity etc.) Log return rates Both loss ratios and return rates are used routinely. The more it is astonishing that the ongoing actuarial techniques for dealing with these two quantities have very little in common. Let me make my point even more provocative: I believe strongly that the thinking developed in insurance to deal with loss ratios should also be used in the finance sector for dealing with returns. Obviously some modifications are appropriate and I shall talk about them. But - and that is my message to the specialists in finance - the basic concepts are there to be used, developed over more than eighty years by casualty actuaries and by members of ASTIN on one side and by- statisticians on the other.