Sustainable Construction and Financing—Asset-Backed Securitization of Expressway’s Usufruct with Redeemable Rights

Asset-backed securitization will greatly promote the sustainability of infrastructure construction and financing. However, there are quite limited researches conducted in this field. Given the project characteristics of infrastructure project securities, this paper proposes the issuance steps of redeemable asset-backed notes (ABN) based on the infrastructure project’s usufruct as the basic asset. Taking the expressway franchise as an example, the issuing scale and coupon rate of the redeemable ABN are determined by the expected cash flow of the expressway, the term structure of random interest rates, and the option-adjusted spread (OAS). In addition, this research analyzes the duration, convexity, and OAS.

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The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil

Revista Contabilidade & Finanças ◽

10.1590/1808-057x201500420 ◽

2015 ◽

Vol 26 (68) ◽

pp. 223-236

Author(s):

Antonio Aurelio Duarte ◽

Aldy Fernandes da Silva ◽

Luciano Vereda Oliveira ◽

Elionor Farah Jreige Weffort ◽

Betty Lilian Chan

Keyword(s):

Interest Rates ◽

Term Structure ◽

Cash Flow ◽

Yield Curve ◽

Spline Interpolation ◽

Insurance Companies ◽

Forward Rate ◽

Insurance Company ◽

Current Estimate ◽

The Impact

<p>The Brazilian regulation for applying the Liability Adequacy Test (LAT) to technical provisions in insurance companies requires that the current estimate is discounted by a term structure of interest rates (hereafter TSIR). This article aims to analyze the LAT results, derived from the use of various models to build the TSIR: the cubic spline interpolation technique, Svensson's model (adopted by the regulator) and Vasicek's model. In order to achieve the objective proposed, the exchange rates of BM&FBOVESPA trading days were used to model the ETTJ and, consequently, to discount the cash flow of the insurance company. The results indicate that: (i) LAT is sensitive to the choice of the model used to build the TSIR; (ii) this sensitivity increases with cash flow longevity; (iii) the adoption of an ultimate forward rate (UFR) for the Brazilian insurance market should be evaluated by the regulator, in order to stabilize the trajectory of the yield curve at longer maturities. The technical provision is among the main solvency items of insurance companies and the LAT result is a significant indicator of the quality of this provision, as this evaluates its sufficiency or insufficiency. Thus, this article bridges a gap in the Brazilian actuarial literature, introducing the main methodologies available for modeling the yield curve and a practical application to analyze the impact of its choice on LAT.</p>

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