Embedded Value in Life Insurance

Castellani, Gilberto; Felice, Massimo De; Moriconi, Franco; Pacati, Claudio

doi:10.2139/ssrn.2761395

Cited by 14 publications

(6 citation statements)

References 10 publications

(8 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In order to test our model and price insurance products options, we have set up a full ALM simulation based on a specifically engineered MATLAB R code, which adopts an approach derived from [Castellani et al, 2005]. Alternatively, it is possible to use other ALM softwares in commerce, which employ a similar methodology.…”

Section: Martingale Testmentioning

confidence: 99%

A market-consistent framework for the fair evaluation of insurance contracts under Solvency II

Gambaro

Casalini²,

Fusai

et al. 2019

Decisions Econ Finan

View full text Add to dashboard Cite

The entry into force of the Solvency II regulatory regime is pushing insurance companies in engaging into market consistence evaluation of their balance sheet, including the financial options and guarantees embedded in life with-profit funds. The robustness of these valuations is crucial for insurance companies in order to produce sound estimates and good risk management strategies, in particular for liability driven products such as with-profit saving and pension funds. This paper introduces a simulation approach for Monte Carlo evaluation of insurance assets and liabilities, which is more suitable for risk management of liability driven products than common approaches generally adopted by insurance companies, in particular with respect to the assessment of valuation risk.

show abstract

Section: Martingale Testmentioning

confidence: 99%

A market-consistent framework for the fair evaluation of insurance contracts under Solvency II

Gambaro

Casalini²,

Fusai

et al. 2019

Decisions Econ Finan

View full text Add to dashboard Cite

show abstract

“…8 The assets book value is calculated under the Local Generally Adopted Accounting Principles (LGAAP). Although this is similar to the old, Solvency I, coverage ratio, we wanted to keep our approach adherent to [10]. Indeed, aligning the value of the assets backing reserves at their statutory value provides to be useful in decomposing the embedded value of the in-force business.…”

Section: Description Of the Simulation Apparatusmentioning

confidence: 99%

“…See results in section 4.2. Reinvestment strategy deserves a particular comment, since in our model new investments occur on constant maturity strategy 10 . This gives mainly two advantages: the exposure on key rate maturities can be controlled easily during the simulation, and no accounting option emerges to bias the results.…”

Section: Description Of the Simulation Apparatusmentioning

confidence: 99%

Quantitative assessment of common practice procedures in the fair evaluation of embedded options in insurance contracts

Gambaro

Casalini²,

Fusai

et al. 2018

Insurance: Mathematics and Economics

View full text Add to dashboard Cite

This work analyses the common industry practice used to evaluate financial options written on with-profit policies issued by European insurance companies. In the last years regulators introduced, with the Solvency II directive, a market consistent valuation framework for determining the fair value of asset and liabilities of insurance funds. A relevant aspect is how to deal with the estimation of sovereign credit and liquidity risk, that are important components in the valuation of the majority of insurance funds, which are usually heavily invested in treasury bonds. The common practice is the adoption of the certainty equivalent approach (CEQ) for the risk neutral evaluation of insurance liabilities, which results in a deterministic risk adjustment of the securities cash flows. In this paper, we propose an arbitrage free stochastic model for interest rate, credit and liquidity risks, that takes into account the dependences between different government bond issuers. We test the impact of the common practice against our proposed model, via Monte Carlo simulations. We conclude that in the estimation of options whose payoff is determined by statutory accounting rules, which is often the case for European traditional with-profit insurance products, the deterministic adjustment for risk of the securities cash flows is not appropriate, and that a more complete model such as the one described in this article is a viable and sensible alternative in the context of market consistent evaluations. JEL classification codes: C63.

show abstract

“…For an exhaustive analysis of the basic principles and methodological approach for a valuation system of profit sharing policies with minimum guarantees we address to [4,12]. The long computing time needed for evaluating market values and statutory values, the large number of policies in each portfolio of the insurance company, the large number of contracts in the segregated fund, the modelling of the management actions, the application and the control of the investment strategy make the simulation process of portfolios of PS policies a large-scale computational problem.…”

Section: Profit Sharing Life Insurance Policies 21 Valuation Modelmentioning

confidence: 99%

Hybrid MPI/openMP application on multicore architectures: the case of profit-sharing life insurance policies valuation

Angelis¹,

Perla²,

Zanetti³

2013

ams

View full text Add to dashboard Cite

show abstract

Embedded Value in Life Insurance

Cited by 14 publications

References 10 publications

A market-consistent framework for the fair evaluation of insurance contracts under Solvency II

A market-consistent framework for the fair evaluation of insurance contracts under Solvency II

Quantitative assessment of common practice procedures in the fair evaluation of embedded options in insurance contracts

Hybrid MPI/openMP application on multicore architectures: the case of profit-sharing life insurance policies valuation

Contact Info

Product

Resources

About