Solvency II solvency capital requirement for life insurance companies based on expected shortfall

Boonen, Tim J.

doi:10.1007/s13385-017-0160-4

Cited by 29 publications

(8 citation statements)

References 32 publications

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“… 2007 and Liebwein 2006 ). The three-pillar structure follows a twofold objective: on the one hand, policy holders shall be protected as insurers are required to hold sufficient economic capital, and on the other hand, financial stability is increased (see, amongst others, Boonen 2017 and Gatzert and Wesker 2012 ). Besides its complexity (see, for instance, Monkiewicz 2013 and Meier, Rodriguez Gonzalez and Kunze, 2020 ), the Solvency II Directive and its risk-based approach is regarded as highly sophisticated and viewed as a significant improvement to previous regulatory frameworks governing the EU’s insurance industry (see, for example, Rae et al.…”

Section: Some Regulatory Issuesmentioning

confidence: 99%

Risk premia and the European government bond market: new empirical evidence and some thoughts from the perspective of the life insurance industry

et al. 2021

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We study yield spreads between government bonds in the European Monetary Union. This segment of the global fixed income market is of particular importance for insurance companies in Europe. Our empirical research strategy is inspired by Gunay (2020) who has analyzed the relationship between credit and liquidity risk in the United States using Granger causality tests. More specifically, we employ the procedure developed by Toda and Yamamoto (1995) to test for Granger causality among yield spreads in five different member countries of the European Monetary Union (namely Austria, Belgium, France, Italy and Ireland) relative to Germany. We examine interest rate data from bonds with three different maturities (5, 10 and 30 years). Given the importance of long-term bonds as asset class for European life insurers and pension funds, the empirical results from the often ignored market for government bonds with a maturity of 30 years should be of interest. With regard to long-term sovereign debt, there is no evidence for Granger causality among the time series examined here. Consequently, the risk premia required by investors to hold government bonds of one specific member country of the EMU do not help to forecast the risk premia that have to be paid by other countries. Given the structure of their liabilities, this empirical finding should be of high relevance for portfolio and risk managers in the European life insurance industry and in pension funds. With regard to the yield spreads to be observed in the market for 10-year government bonds, there seems to be no clear picture. Focusing on fixed income securities with a maturity of 5 years, there is one very interesting empirical finding. The test results reported here seem to imply that there is unidirectional Granger causality running from the yield spreads in all other four countries to Austria. Given that Austria is a comparably small country which is assumed to be in a fiscally stable position, this result could be interpreted as evidence for credit risk premia as being helpful to forecast liquidity risk premia in the market for medium-term government bonds issued by member states of the European Monetary Union.

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Section: Some Regulatory Issuesmentioning

confidence: 99%

Risk premia and the European government bond market: new empirical evidence and some thoughts from the perspective of the life insurance industry

et al. 2021

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“…An alternative approach calculated the SCR under Solvency II as a function of sub risk categories, namely equity risk and market risk [22].…”

Section: Solvency Capital Requirement (Scr)mentioning

confidence: 99%

Study of Volatility Stochastic Processes in the Context of Solvency Forecasting for Sri Lankan Life Insurers

Mendis¹

2021

OJS

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The main business of Life Insurers is Long Term contractual obligations with a typical lifetime of 20 -40 years. Therefore, the Solvency metric is defined by the adequacy of capital to service the cash flow requirements arising from the said obligations. The main component inducing volatility in Capital is market sensitive Assets, such as Bonds and Equity. Bond and Equity prices in Sri Lanka are highly sensitive to macro-economic elements such as investor sentiment, political stability, policy environment, economic growth, fiscal stimulus, utility environment and in the case of Equity, societal sentiment on certain companies and industries. Therefore, if an entity is to accurately forecast the impact on solvency through asset valuation, the impact of macroeconomic variables on asset pricing must be modelled mathematically. This paper explores mathematical, actuarial and statistical concepts such as Brownian motion, Markov Processes, Derivation and Integration as well as Probability theorems such as the Probability Density Function in determining the optimum mathematical model which depicts the accurate relationship between macro-economic variables and asset pricing.

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“…As highlighted by Rockafellar and Uryasev (2002), one of the main advantages of ES in relation to VaR is the fact that the ES presents the additional property of sub-additivity that classifies it as a coherent risk measure. Further details on ES can be found, for example, in the studies of Kellner and Rösch (2016), Boonen (2017), Degiannakis and Potamia (2017) and Müller and Righi (2018).…”

Section: Empirical Strategymentioning

confidence: 99%

Does extreme rainfall lead to heavy losses in the food industry?

Lucas

Mendes‐Da‐Silva

Araújo

2019

ARLA

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Purpose Managing the risks associated to world food production is an important challenge for governments. A range of factors, among them extreme weather events, has threatened food production in recent years. The purpose of this paper is to analyse the impact of extreme rainfall events on the food industry in Brazil, a prominent player in this industry. Design/methodology/approach The authors use the AR-GARCH-GPD hybrid methodology to identify whether extreme rainfall affects the stock price of food companies. To do so, the authors collected the daily closing price of the 16 food industry companies listed on the Brazilian stock exchange (B3), in January 2015. Findings The results indicate that these events have a significant impact on stock returns: on more than half of the days immediately following the heavy rain that fell between 28 February 2005 and 30 December 2014, returns were significantly low, leading to average daily losses of 1.97 per cent. These results point to the relevance of the need for instruments to hedge against weather risk, particularly in the food industry. Originality/value Given that extreme weather events have been occurring more and more frequently, financial literature has documented attempts at assessing the economic impacts of weather changes. There is little research, however, into assessing the impacts of these events at corporate level.

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Solvency II solvency capital requirement for life insurance companies based on expected shortfall

Cited by 29 publications

References 32 publications

Risk premia and the European government bond market: new empirical evidence and some thoughts from the perspective of the life insurance industry

Risk premia and the European government bond market: new empirical evidence and some thoughts from the perspective of the life insurance industry

Study of Volatility Stochastic Processes in the Context of Solvency Forecasting for Sri Lankan Life Insurers

Does extreme rainfall lead to heavy losses in the food industry?

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