Realistic modeling of dynamic management actions (DMA) is critical to many areas of the management of a life insurance company, although, historically, actuarial models effectively assumed static rules for future management actions.

In an ideal world, management would react to events in a dynamic way and decide in advance how they would react to the range of circumstances that may arise in the future. Frequently, however, not enough attention is devoted to the planning, modeling, and monitoring of dynamic management actions.

This research report discusses the issues involved in modeling DMA and how this provides a crucial link between Pillar I and Pillar II of Solvency II, as well as playing a key role in enterprise risk management.

This paper was originally presented at the Staple Inn Actuarial Society in London on 6 March 2012.