A Risk-Theory Model to Assess the Capital Requirement for Mortality and Longevity Risk

Savelli, Nino; Clemente, Gian Paolo

doi:10.1080/09720502.2013.849943

Cited by 6 publications

(13 citation statements)

References 14 publications

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“…Furthermore, we prove that a gain and loss decomposition is possible in order to emphasize the main profit components. The decomposition is developed in a similar fashion to the well-known decomposition provided by Homans (Bacinello 1986;Savelli and Clemente 2013) in a local accounting framework.…”

Section: Technical Profit and Gain/loss Decomposition In A Solvency II Frameworkmentioning

confidence: 99%

“…We start by briefly recalling the r.v. technical profit, that we denote 1 with Ỹt+1 , in a local accounting context (Savelli and Clemente 2013;Savelli 1993)…”

Section: Technical Profit and Gain/loss Decomposition In A Solvency II Frameworkmentioning

confidence: 99%

“…represents the demographic profit in a local accounting framework (Savelli and Clemente 2013). Additionally, it is interesting to separately highlight the effects of risk-free rates volatility and demographic trends.…”

Section: The Demographic Profit and Its Factorisationmentioning

confidence: 99%

“…Bauer and Ha (2015) propose an approach for the calculation of the required risk capital based on least-squares regression and Monte Carlo simulations. Savelli and Clemente (2013) provide an approach based on risk theory to evaluate the capital requirement for mortality and longevity risk in a local accounting framework. Boonen (2017) examines the consequences for a life insurance company of a calibration of longevity and financial risks by using the expected shortfall instead of value-at-risk.…”

Section: Introductionmentioning

confidence: 99%

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A Bridge between Local GAAP and Solvency II Frameworks to Quantify Capital Requirement for Demographic Risk

Clemente

Corte

Savelli

2021

Risks

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The aim of this paper is to provide a stochastic model useful for assessing the capital requirement for demographic risk in a framework coherent with the Solvency II Directive. The model extends to the market consistent context classical methodologies developed in a local accounting framework. The random variable demographic profit, defined in literatue under local accounting principles, is indeed analysed in a Solvency II framework. We provide a unique formulation for different non-participating life insurance contracts and we prove analytically that the valuation of demographic profit can be significantly affected by the financial conditions in the market. Regarding this topic, we implement the Vašíček model to add randomness to risk-free rates. A case study has also been developed considering a portfolio of life insurance contracts. Results prove the effectiveness of the model in highlighting the main drivers of capital requirement evaluation (e.g., the volatility of both mortality rates and risk-free rates), also compared to the local GAAP framework.

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Section: Technical Profit and Gain/loss Decomposition In A Solvency II Frameworkmentioning

confidence: 99%

“…We start by briefly recalling the r.v. technical profit, that we denote 1 with Ỹt+1 , in a local accounting context (Savelli and Clemente 2013;Savelli 1993)…”

Section: Technical Profit and Gain/loss Decomposition In A Solvency II Frameworkmentioning

confidence: 99%

Section: The Demographic Profit and Its Factorisationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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A Bridge between Local GAAP and Solvency II Frameworks to Quantify Capital Requirement for Demographic Risk

Clemente

Corte

Savelli

2021

Risks

Self Cite

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“…For most firms that adopt it, the matching strategy is an objective rather than a day-to-day reality. The goal of management is for long-term funds to match the firm's long-term investments (net fixed assets and permanent WCR) and for short-term funds to match the firm's short-term investments (cash, marketable securities, and seasonal working capital requirement [8][9] ) over time. This objective may not beeasily achieved in practice, and at times, the firm may find itself in a mismatched situation in which a significant portion of its permanent working capital is funded with short-term debt.…”

Section: A Measure Of Liquidity Based On the Funding Structure Of Wormentioning

confidence: 99%

The Research of Assessing Liquidity and Operational Efficiency

Gao¹

2016

Proceedings of the 2016 International Conference on Humanity, Education and Social Science

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A firm that can no longer pay its creditors-its bankers and suppliers-is illiquid and technically bankrupt, a situation that no manager wishes to face. Managers must make decisions that do not endanger their firm's liquidity-a term that refers to the firm's ability to meet its recurrent cash obligations toward various creditors. A firm's liquidity is driven by the structure of its balance sheet, namely, by the nature and composition of its assets and the way they are financed. To finance these investments, the firm uses a combination of short-term and long-term sources of funds. One way a firm can manage its balance sheet and enhance its liquidity is by using the matching strategy. This strategy requires that long-term investments be financed with long-term funds and short-term investments with short-term funds. We show in this chapter that the matching principle helps explain how a firm's liquidity should be measured and how liquidity is affected by managerial decisions.

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An undertaking specific approach to address diversifiable demographic risk within Solvency II framework

Clemente,

Corte,

Savelli

2024

Decisions Econ Finan

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This study addresses the assessment of capital requirements in life insurance for idiosyncratic demographic risks arising from mortality and longevity in compliance with the Solvency II framework. A closed-formula methodology, using a cohort-based risk theoretical approach, is introduced to properly capture the volatility associated with policyholder deaths or survivals. This approach not only accounts for portfolio size effects but it also considers the impact of variability in sums insured within cohorts and coverage types with an additional specific address to distribution tails. The proposed methodology offers a viable alternative within the Solvency II context, addressing limitations identified in previous studies for the Standard Formula nowadays in force. Focusing only on the diversifiable part of demographic risk, the approach considers company’s specific parameters through a risk-based formula, as opposed to a simple scenario approach with demographic stress on the Best Estimate of underlying contracts valid for the whole business. Numerical results show its accuracy in approximating capital requirements for a large range of life insurance contracts.

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A Risk-Theory Model to Assess the Capital Requirement for Mortality and Longevity Risk

Cited by 6 publications

References 14 publications

A Bridge between Local GAAP and Solvency II Frameworks to Quantify Capital Requirement for Demographic Risk

A Bridge between Local GAAP and Solvency II Frameworks to Quantify Capital Requirement for Demographic Risk

The Research of Assessing Liquidity and Operational Efficiency

An undertaking specific approach to address diversifiable demographic risk within Solvency II framework

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