Strategisches Asset-Liability Management in der Versicherungswirtschaft — Ein Ansatz zur integrierten Bilanzstrukturoptimierung

Discontinued German life insurance portfolios: rules‐in‐use, interest rate risk, and Solvency II

“…For life insurers post Solvency II, “best practice” ALM capabilities will become a competitive advantage. QIS4 results confirm this view as market risk accounts for 81.7 per cent of life insurers' required capital under QIS4 (compared to 54.6 per cent for non‐life insurers and 78.1 per cent for all business segments) (JP Morgan Chase & Co., 2010a; KPMG, 2002; Basse et al , 2007). As shown by an exemplary calculation by van Bragt et al (2010), interest rate risk (due to duration and convexity mismatch) and equity risk (due to significant equity exposure) dominate the required capital under Solvency II in approximately equal proportions, while a diversification effect between interest rate and equity risk is, due to calculation assumptions, relatively limited.…”

“…As interest rates may fall below the guaranteed interest rates, primary life insurers are exposed to significant interest rate risk. This has also to be seen in the light that until 2001 the net return on investment could be partly sourced by returns from equities – a potential that has disappeared as German primary life insurers have significantly reduced their equity investments since then (Basse et al , 2007; Assekurata, 2010). At the end of 2009, German life insurers' equity investments represented only estimated 4.8 per cent of total financial assets (Societe Générale, 2010).…”

“…In fact, given that German life policies are linked to an interest‐rate guarantee, the discount rate used (also under IFRS) usually equals the guaranteed interest rate. However, from an economic perspective, interest rate risk relates to the need to earn a return on investments on the asset side covering the provision that is commensurate with the discount rate used to measuring the provision (Basse et al , 2007; Rockel et al , 2007). In case of a discrepancy between the duration of these investments and liabilities, the risk arises that interest rates decrease over the remaining settlement period of the liabilities and the return of reinvested assets may be distinctly below the discount rates.…”

Solvency II, asset liability management, and the European bond market – theory and empirical evidence

“…Interest rates changes are identified as a main risk category threatening the economic value of life insurers. Basse et al (2007) have reported results from simulations studies and have argued that the risk derived from changes in interest rates can best be tackled if the durations of assets and liabilities match (see Basse et al 2007, p. 628) Basse et al 2007 , p. 640). This shows that employing a matched duration strategy does not only fulfil Solvency II requirements but also proves to be economically optimal.…”