scholarly journals Asset Allocation to Optimise Life Insurance Annuity Firm Economic Capital and Risk Adjusted Performance

2008 ◽  
Vol 3 (1-2) ◽  
pp. 187-214 ◽  
Author(s):  
Bruce T. Porteous ◽  
Pradip Tapadar
Keyword(s):  
Life Insurance ◽  
Asset Allocation ◽  
Financial Services ◽  
Stochastic Modelling ◽  
Economic Capital ◽  
Conventional Wisdom ◽  
Low Risk ◽  
Bond Type ◽  
The Impact ◽  
Modelling Approach

ABSTRACTThe impact that asset allocation has on the economic capital and the risk adjusted performance of financial services firms is considered in this article. A stochastic modelling approach is used in conjunction with a life insurance annuity firm illustrative example. It is shown that traditional solvency driven deterministic approaches to financial services firm asset allocation can yield sub optimal results in terms of minimising economic capital or maximising risk adjusted performance. Our results challenge the conventional wisdom that the assets backing life insurance annuities and financial services firm capital should be invested in low risk, bond type, assets. Implications for firms, customers, capital providers and regulators are discussed.

scholarly journals The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance

2008 ◽  
Vol 38 (01) ◽  
pp. 341-380 ◽  
Author(s):  
Bruce T. Porteous ◽  
Pradip Tapadar
Keyword(s):  
Capital Structure ◽  
Asset Allocation ◽  
Financial Services ◽  
Stochastic Modelling ◽  
Economic Capital ◽  
Tier 2 ◽  
Risky Assets ◽  
Tier 1 ◽  
The Impact ◽  
Tier 1 Capital

The impact that capital structure and capital asset allocation have on financial services firm economic capital and risk adjusted performance is considered. A stochastic modelling approach is used in conjunction with banking and insurance examples. It is demonstrated that gearing up Tier 1 capital with Tier 2 capital can be in the interests of bank Tier 1 capital providers, but may not always be so for insurance Tier 1 capital providers. It is also shown that, by allocating a bank or insurance firm’s Tier 1 and Tier 2 capital to higher yielding, more risky assets, risk adjusted performance can be enhanced. These results are particularly pertinent with the advent of the new Basel 2 and Solvency 2 risk based capital initiatives, for banks and insurers respectively.

scholarly journals The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance

2008 ◽  
Vol 38 (1) ◽  
pp. 341-380 ◽  
Author(s):  
Bruce T. Porteous ◽  
Pradip Tapadar
Keyword(s):  
Capital Structure ◽  
Asset Allocation ◽  
Financial Services ◽  
Stochastic Modelling ◽  
Economic Capital ◽  
Tier 2 ◽  
Risky Assets ◽  
Tier 1 ◽  
The Impact ◽  
Tier 1 Capital

The impact that capital structure and capital asset allocation have on financial services firm economic capital and risk adjusted performance is considered. A stochastic modelling approach is used in conjunction with banking and insurance examples. It is demonstrated that gearing up Tier 1 capital with Tier 2 capital can be in the interests of bank Tier 1 capital providers, but may not always be so for insurance Tier 1 capital providers. It is also shown that, by allocating a bank or insurance firm’s Tier 1 and Tier 2 capital to higher yielding, more risky assets, risk adjusted performance can be enhanced. These results are particularly pertinent with the advent of the new Basel 2 and Solvency 2 risk based capital initiatives, for banks and insurers respectively.

scholarly journals OPTIMAL ASSET ALLOCATION IN LIFE INSURANCE: THE IMPACT OF REGULATION

2016 ◽  
Vol 46 (3) ◽  
pp. 605-626 ◽  
Author(s):  
An Chen ◽  
Peter Hieber
Keyword(s):  
Life Insurance ◽  
Asset Allocation ◽  
Regulatory Policy ◽  
Capital Requirements ◽  
Insurance Company ◽  
Traffic Light ◽  
Optimal Insurance ◽  
Insurance Contracts ◽  
Solvency Capital ◽  
The Impact

AbstractIn a typical equity-linked life insurance contract, the insurance company is entitled to a share of return surpluses as compensation for the return guarantee granted to the policyholders. The set of possible contract terms might, however, be restricted by a regulatory default constraint — a fact that can force the two parties to initiate sub-optimal insurance contracts. We show that this effect can be mitigated if regulatory policy is more flexible. We suggest that the regulator implement a traffic light system where companies are forced to reduce the riskiness of their asset allocation in distress. In a utility-based framework, we show that the introduction of such a system can increase the benefits of the policyholder without deteriorating the benefits of the insurance company. At the same time, default probabilities (and thus solvency capital requirements) can be reduced.

scholarly journals Study protocol: the Australian genetics and life insurance moratorium—monitoring the effectiveness and response (A-GLIMMER) project

2021 ◽  
Vol 22 (1) ◽  
Author(s):  
Jane Tiller ◽  
Aideen McInerney-Leo ◽  
Andrea Belcher ◽  
Tiffany Boughtwood ◽  
Penny Gleeson ◽  
...  
Keyword(s):  
Life Insurance ◽  
Financial Services ◽  
Genetic Test ◽  
Insurance Industry ◽  
Genetic Research ◽  
Evaluation Framework ◽  
Test Results ◽  
Financial Industry ◽  
Genetic Test Results ◽  
The Impact

Abstract Background The use of genetic test results in risk-rated insurance is a significant concern internationally, with many countries banning or restricting the use of genetic test results in underwriting. In Australia, life insurers’ use of genetic test results is legal and self-regulated by the insurance industry (Financial Services Council (FSC)). In 2018, an Australian Parliamentary Inquiry recommended that insurers’ use of genetic test results in underwriting should be prohibited. In 2019, the FSC introduced an industry self-regulated moratorium on the use of genetic test results. In the absence of government oversight, it is critical that the impact, effectiveness and appropriateness of the moratorium is monitored. Here we describe the protocol of our government-funded research project, which will serve that critical function between 2020 and 2023. Methods A realist evaluation framework was developed for the project, using a context-mechanism-outcome (CMO) approach, to systematically assess the impact of the moratorium for a range of stakeholders. Outcomes which need to be achieved for the moratorium to accomplish its intended aims were identified, and specific data collection measures methods were developed to gather the evidence from relevant stakeholder groups (consumers, health professionals, financial industry and genetic research community) to determine if aims are achieved. Results from each arm of the study will be analysed and published in peer-reviewed journals as they become available. Discussion The A-GLIMMER project will provide essential monitoring of the impact and effectiveness of the self-regulated insurance moratorium. On completion of the study (3 years) a Stakeholder Report will be compiled. The Stakeholder Report will synthesise the evidence gathered in each arm of the study and use the CMO framework to evaluate the extent to which each of the outcomes have been achieved, and make evidence-based recommendations to the Australian federal government, life insurance industry and other stakeholders.

Assessing the Impact of Suicide Exclusion Periods on Life Insurance

Crisis ◽  
2010 ◽  
Vol 31 (4) ◽  
pp. 217-223 ◽  
Author(s):  
Paul Yip ◽  
David Pitt ◽  
Yan Wang ◽  
Xueyuan Wu ◽  
Ray Watson ◽  
...  
Keyword(s):  
Life Insurance ◽  
Accidental Death ◽  
Insurance Policy ◽  
Death Rates ◽  
Insurance Policies ◽  
Suicidal Death ◽  
Insured Individual ◽  
The Impact ◽  
Insurance Data ◽  
The Relationship

Background: We study the impact of suicide-exclusion periods, common in life insurance policies in Australia, on suicide and accidental death rates for life-insured individuals. If a life-insured individual dies by suicide during the period of suicide exclusion, commonly 13 months, the sum insured is not paid. Aims: We examine whether a suicide-exclusion period affects the timing of suicides. We also analyze whether accidental deaths are more prevalent during the suicide-exclusion period as life-insured individuals disguise their death by suicide. We assess the relationship between the insured sum and suicidal death rates. Methods: Crude and age-standardized rates of suicide, accidental death, and overall death, split by duration since the insured first bought their insurance policy, were computed. Results: There were significantly fewer suicides and no significant spike in the number of accidental deaths in the exclusion period for Australian life insurance data. More suicides, however, were detected for the first 2 years after the exclusion period. Higher insured sums are associated with higher rates of suicide. Conclusions: Adverse selection in Australian life insurance is exacerbated by including a suicide-exclusion period. Extension of the suicide-exclusion period to 3 years may prevent some “insurance-induced” suicides – a rationale for this conclusion is given.

Human Capital, Asset Allocation, and Life Insurance

CFA Digest ◽  
2006 ◽  
Vol 36 (2) ◽  
pp. 93-94
Author(s):  
Peng Chen ◽  
Roger G. Ibbotson ◽  
Moshe A. Milevsky ◽  
Kevin X. Zhu
Keyword(s):  
Human Capital ◽  
Life Insurance ◽  
Asset Allocation ◽  
Capital Asset
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