The Closed Fund Alternative

Hairs, C.J.; Arnold, Markus C.; Gustar, Andrew; Hare, D. J. P.; Needleman, P. D.; Tuley, P. J.; Webber, J. M.

doi:10.1017/s1357321700000647

Cited by 3 publications

(2 citation statements)

References 3 publications

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“… Write less new business (Bunch, 1988). Indeed, a fund could cease writing new business, becoming a "closed fund" (Hairs et al, 1999). This is more likely if an insurer's solvency level is low (O'Brien and Diacon, 2005).…”

Section: Reducing the Impact Of New Business Being Writtenmentioning

confidence: 99%

When Insurers Have Discretion: Lessons for Regulators from UK Insurers' Response to the Global Financial Crisis

O’Brien¹

2019

JIR

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This paper examines the steps taken by life insurers writing participating business in the UK to protect their solvency during the global financial crisis of 2008. It highlights two areas where the insurers had discretion and the interest that regulators have in controlling that discretion. The first is that the regulations then in force allowed discretion to insurers in the discount rate they used to calculate their liabilities in the calculations of solvency that were required. This paper finds that one of the main responses of the insurers to the global financial crisis was to reduce the margin of prudence in the discount rate they used to value their liabilities, meaning that their liabilities were given a lower value than otherwise, with a consequent increase in their reported solvency. Insurers also used their discretion to increase their charges to and reduce the payouts to policyholders, while they also reduced risks by adopting a more conservative investment strategy. This paper then considers the effect of Solvency II regulation introduced in the European Union (EU) in 2016 and the implications for regulators generally. Regulators need to be wary of rules that offer insurers discretion in calculating their liabilities; they may use it to enhance their reported financial position in a way that is essentially artificial. Solvency II removes the discretion in choice of discount rate, implying that insurers need to review how they manage solvency in adverse circumstances. It is also suggested that European regulators review their rules to ensure that policyholders are fairly protected when insurers have discretion on charges and payouts.

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Section: Reducing the Impact Of New Business Being Writtenmentioning

confidence: 99%

When Insurers Have Discretion: Lessons for Regulators from UK Insurers' Response to the Global Financial Crisis

O’Brien¹

2019

JIR

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“…1.3 While much has been written on building societies and mutuality (see, for example, Llewellyn, 1999), mutuality in insurance has received much less coverage (hence the bias towards mutual insurers in terms of this paper's content). In their report (Hairs et al, 1999), the Closed Fund Alternative Working Party did make mention of the possible public interest issues arising from life office demutualisations, and raised the question of how far the actuarial profession should address them, recognising that: ªgiven the relatively large number of life insurance companies in the U.K., it is difficult to argue that closure of any one company has major public interest implications.'' However, is there a public interest issue if there are no mutuals at all?…”

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confidence: 99%

Corporate Diversity and the Provision of Financial Services

Guijarro¹,

Hare²

2002

Br. Actuar. J.

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The corporate landscape of United Kingdom financial services has changed considerably in the last fifteen years with virtually all the main players now shareholder-owned. The dominance of shareholder ownership may not last for ever and the pendulum could swing back to alternate structures. Should the actuarial profession look ahead and consider what, if anything, could be done to encourage diversity? This paper considers some of the issues involved and raises some questions for the profession to discuss.

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A Market-Based Approach to Pricing With-Profits Guarantees

Hare¹,

Dickson²,

McDade³

et al. 2000

Br. Actuar. J.

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This paper addresses one of the fundamental issues faced by offices in the transacting of withprofits business, namely the provision of equity-related performance along with maturity guarantees that increase over the lifetime of the policy. The approach commonly followed of using capital to cover the office's investment mismatch risk is considered from an individual policy viewpoint, and, through stochastic modelling, the degree of security represented by different reserve levels identified. An alternative approach using derivatives to provide similar levels of security is then presented and the range of policy proceeds resulting from the two methods compared. While it is recognised that the latter approach may have limited application in practice, the ideas presented could form the basis of a new approach to pricing guarantees under with-profits business that would be consistent with the pricing of current derivative-backed guaranteed products.

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The Closed Fund Alternative

Cited by 3 publications

References 3 publications

When Insurers Have Discretion: Lessons for Regulators from UK Insurers' Response to the Global Financial Crisis

When Insurers Have Discretion: Lessons for Regulators from UK Insurers' Response to the Global Financial Crisis

Corporate Diversity and the Provision of Financial Services

A Market-Based Approach to Pricing With-Profits Guarantees

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