Introduction

In this chapter we give an introduction to financial modeling, actuarial valuation and solvency in insurance. The purpose of this book is to introduce sound risk measurement methods which form the bases of good risk management policies and solvency regulation in theory and in practice. In this book we define a comprehensive mathematical framework that adequately describes price formation and captures the corresponding risk factors that influence the stability of the financial industry. In particular, we develop quantitative risk management models and methods for insurance companies. These can be used for risk assessment, supervision and management of insurance companies. The models and methods that we describe are at the heart of quantitative solvency considerations of insurance companies and belong to the wider area of enterprise risk management. To fulfill this task we need to introduce the full balance sheet approach which is described in the present chapter. Moreover, we discuss solvency in general and we describe related general modeling issues. The chapter is closed by giving an overview of the topics treated in the book.