Market Value of Liabilities Mortality Risk

Abstract

Market values of the invested assets are frequently published. For most insurance liabilities, there are no published market values and, therefore, these have to be constructed. This construction can be based on a best estimate and a price for the risks in the liabilities. This paper presents a model explaining how the best estimate and the price of mortality risk can be constructed. Several methods to describe the risks are already known. The purpose of this paper is to describe a method to determine the mortality risk in a practical way.     

Two Paradigms for The Market Value of Liabilities

Abstract

Asset/liability management (ALM) theory and practices of insurers have matured and developed from early applications to guaranteed investment contracts (GICs) to all annuity and insurance products today. An important and logical next step of inquiry is the definition of, and calculation procedures for, the market value of an insurance liability. Because all ALM strategies have as their goal the management of some value of assets in relation to some value of liabilities, this inquiry will provide at last a canonical basis for ALM: the management of relative market values.

To set the stage for this exploration, the theory and application of pricing in a complete market are reviewed, as are the practical limitations of this theory in the real, and far from complete, financial markets. The notion of an ad hoc pricing model is developed, and examples are reviewed and critiqued. These models, though imperfect compared with pricing in a complete market, bridge the gap between pricing theory and practice.

The current state of the liabilities market is also discussed, and this market is seen to naturally split into a “long” and a “short” submarket. Of particular interest is the theoretical possibility of these markets becoming broad-based, deep and active, and the conclusions are relevant to the issue of long/short price equalization.

Two paradigms are then explored for defining and subsequently calculating an insurance liability market value. A “paradigm” is a generalized model or framework for accomplishing the task at hand. Each paradigm reflects observable market trading activity, however infrequent, and each is based on methods of valuation consistent with finance-theoretic approaches that are routinely used for the market valuation of assets.

In addition, each paradigm allows for a sequence of ad hoc valuation methodologies, which differ in the extent to which various risks are explicitly modeled versus judgmentally reflected in a risk spread. These paradigms are discussed and contrasted, and arguments made for the potential evolution of the respective values if a “liability” market began trading actively. Practical constraints on the realization of this evolution are also noted.

The last section of this paper discusses a host of considerations related to the application of option-pricing theory to insurance company liabilities.     

责任保险:市场失灵、立法强制与道德风险管理

责任保险看起来能够解决安全事故受害者的补偿问题,但单靠市场力量很难形成有规模的责任保险交易.为保证对受害人的赔偿,政府可以在一些关乎百姓生存权的领域实行强制责任保险.不幸的是,强制责任保险会带来被保险人(致害人)的道德风险问题,从而可能降低整个社会的安全水平.鉴于保险人控制被保险人(致害人)道德风险的目标与社会安全目标的一致性,政府和社会应该允许保险人使用社会已有的风险监控系统、支持建立有效的信息共享系统、给予保险人拒绝承保的权利以及由保险人对特殊行业进行强制风险监控.     

Valuation of Participating Life Insurance Liabilities

Surrender and paid-up states are incorporated in the valuation of guaranteed benefits and payments of a level premium paying life insurance policy.

We present different valuation methods and examine to what extent they avoid capitalizing and releasing future loadings which are associated with the payment of future premiums.

We demonstrate how to avoid capital being required in the future to cover valuation strains. The paid-up benefit valuation method is being extended so that it does not require the premium basis to be on the safe-side of the valuation basis. We obtain a unification and integration of the level premium and paid-up valuation principles.     

资本市场的竞争与责任

近年来，关于国内民营企业海外成功上市的消息不断传来。在继香港创业板市场成为内地民企的主要海外上市地之后，全球各大洲的证交所，如北美的纳斯达克、欧洲的伦敦证券交易所、亚洲近邻的东京证券交易所、新加坡证券交易所及韩国证券交易所也纷至沓来，甚至连大洋洲遥远而陌生的澳大利亚证交所也不甘落后，开始于去年在我国第四届高交会上亮相，以图在中国丰富的上市资源中分得一杯羹。     

Life Insurance Liabilities at Market Value: An Analysis of Insolvency Risk, Bonus Policy, and Regulatory Intervention Rules in a Barrier Option Framework

This article takes a contingent claim approach to the market valuation of equity and liabilities in life insurance companies. A model is presented that explicitly takes into account the following: (i) the holders of life insurance contracts (LICs) have the first claim on the company's assets, whereas equity holders have limited liability; (ii) interest rate guarantees are common elements of LICs; and (iii) LICs according to the so‐called contribution principle are entitled to receive a fair share of any investment surplus. Furthermore, a regulatory mechanism in the form of an intervention rule is built into the model. This mechanism is shown to significantly reduce the insolvency risk of the issued contracts, and it implies that the various claims on the company's assets become more exotic and obtain barrier option properties. Closed valuation formulas are nevertheless derived. Finally, some representative numerical examples illustrate how the model can be used to establish the set of initially fair contracts and to determine the market values of contracts after their inception.     

Politics, Insurance Regulation, and Unfunded Pension Liabilities

ABSTRACT: Insurance regulators operate in an environment in which resources are scarce and issues are most often complex and not salient to affected persons. Consequently, regulatory agencies, such as the Pension Benefit Guaranty Corporation (PBGC), need to use resources efficiently by making issues salient and not complex if regulatory goals are to be attained. To further its goal of full funding of defined benefit pension plans, the PBGC annually published a list of the Top Fifty Companies With the Largest Underfunded Pension Liability (LIST). This article investigates the issue of the economic effects of pension plan disclosure by measuring the share price response of the companies included on the LIST; then policy implications are drawn. The event study findings show that, on average, publication of the LIST did not have a negative effect on firm value. However, cross-sectional analysis provides some support for the contention that publication of the LIST had an economic cost on LISTed firms. The authors' results show that the value of large firms on the PBGC's list is less negatively affected at arrival (ARRIVAL) than smaller LISTed firms. Conversely, when firms leave the list (DEPARTURE), the value of large growth-oriented firms is more negatively affected than the value of other firms that reduce their unfunded pension liability. From a policy perspective, as hypothesized by Meier (1991), the PBGC used its scarce resources effectively by publishing the LIST. The issue of unfunded pension liability became less complex and more salient to interested parties. Consequently, consumer groups and political elites provided their support to further the regulatory agency's stated goal, which was the full funding of defined benefit pension plans. Furthermore, increased awareness of the underfunding problem contributed to the passage of the Retirement Protection Act of 1994.     

Asset Pricing of Insurance Loss Liabilities: Some Examples

I construct examples of valuing insurance loss liabilities with asset pricing models, comparing the Rubinstein‐Leland model with the better‐known CAPM. The two models give different values only if the loss payment is asymmetric and correlated with the market portfolio, conditions which can result from the nature of the underlying loss or from the impact of insolvency on the insurer's payment.
In examples where insolvency is not possible and there is no liquidity cost of raising new equity on short notice, the value of a loss liability is equal to the value of the underlying loss, i.e., of the promised coverage, and depends neither on (1) the size of the loss pool; nor on (2) the unsystematic risk of the insurer's liabilities; nor on (3) the composition of an insurer's investment portfolio; nor on (4) the amount of insurer equity.
These factors do affect the value of a loss liability in examples where insolvency and liquidity costs are considered. Other things equal, if a factor increases the likelihood of insolvency, the fair value of a loss liability is lower because the insured is partially self‐insuring; but the liquidity cost of maintaining solvency by raising new equity on short notice is higher, implying a higher fair value of the loss liability.     

保险市场与资本市场应该"互动与双赢"

国务院在新近颁布的《关于推进资本市场改革开放和稳定发展的若干意见》中,明确表示“支持保险资金以多种方式直接投资资本市场,逐步提高社会保障基金、企业补充养老基金、商业保险资金等投入资本市场的资金比例。要培养一批诚信、守法、专业的机构投资者,使基金管理公司和保险公司为主的机构投资者成为资本市场的主导力量”。这些政策将对保险业以及金     

我国证保关系现状与发展趋势分析

随着中国金融市场的发展，拆除保险市场与证券市场间的藩篱，建立起一体化的金融市场，同时形成提供综合金融服务的混业模式，将是我国证券保险业未来发展的趋势。     

CEPA对港澳及内地保险市场的影响

CEPA的实施,更有利于加强内地与港澳地区在保险业方面的紧密合作,实施优势互补,互惠互利。     

Market Pricing of Deposit Insurance

We provide an approach to the market valuation of deposit insurance that is based on reduced-form methods for the pricing of fixed-income securities under default risk. By reference to bank debt prices as well as qualitative-response models of the probability of bank failure, we suggest how a risk-neutral valuation model for deposit insurance can be applied both to the calculation of fair-market deposit insurance premia and to the valuation of long-term claims against the insurer.     

社会医疗保险、自我保护与商业健康保险

基于消费者保险需求理论,采用中国家庭金融调查（CHFS）数据,分析了社会医疗保险、自我保护与商业健康保险之间的关系。结果表明：社会医疗保险抑制了商业健康保险的发展,显著减少了自我保护支出;自我保护促进了商业健康保险的发展。鉴于此,政府应制定合理的封顶线及报销比例以提供适度的基本医疗保险保障水平,商业保险公司应提供差异化的健康保险以补充社会医疗保险,政府及保险公司应鼓励自我保护投资以促进商业健康保险发展。     

培育我国保险公估市场

保险公估人在发达国家已经形成了一套完整的制度和体系，而在我国，目前保险公估市场的发展相对滞后于代理市场和经纪人市场等的发展，处于市场缺位状态。保险市场发展到今天，无时不刻不在呼唤着保险公估人走上历史舞台。因此，国家应在法律法规和相关政策上为加紧培育我国保险公估市场创造条件。     

全国车险费率变法--车险市场费率改革一周年回眸

2002年8月15日,北京的王先生一大早就来到了亚运村汽车交易市场.几年的购车愿望就要实现,王先生的嘴角带着一丝不易察觉的笑容.办完购车手续,王先生没有忘记为自己的爱车上了份保险.     

A Finite Difference Approach to the Valuation of Path Dependent Life Insurance Liabilities

This paper sets up a model for the valuation of traditional participating life insurance policies. These claims are characterized by their explicit interest rate guarantees and by various embedded option elements, such as bonus and surrender options. Owing to the structure of these contracts, the theory of contingent claims pricing is a particularly well-suited framework for the analysis of their valuation.The eventual benefits (or pay-offs) from the contracts considered crucially depend on the history of returns on the insurance company's assets during the contract period. This path-dependence prohibits the derivation of closed-form valuation formulas but we demonstrate that the dimensionality of the problem can be reduced to allow for the development and implementation of a finite difference algorithm for fast and accurate numerical evaluation of the contracts. We also demonstrate how the fundamental financial model can be extended to allow for mortality risk and we provide a wide range of numerical pricing results.     

Issues in the Drive to Measure Liabilities at Fair Value

This paper compares the discussion on liability measurement in Accounting The0y Monograph 10 with the liability measurement requirements in recent international proposals on accounting for financial instruments. Rather than conducting a detailed review of the Monograph, the paper examines three major issues which wawant amplifjing, extending or criticising: What is “fair value”? Why fair value liabilities? Should fair value include an entity's own credit risk? The focus is on financial liabilities such as “plain vanilla” debt; other financial liabilities, such as insurance obligations, pensions, wawanties and environmental damage restoration involve additional considerations and are therefore not considered.     

我国人寿保险信托制度创新初探

目前,我国信托和保险的合作仅限于保险企业参股信托公司以及利用信托拓宽保险资金运用渠道,在合作开发创新性金融产品方面还未取得很大进展。人寿保险信托作为一种结合保险与信托功能的创新型金融业务,具有保障未成年受益人合法权益、资产管理以及避税等功能,是保险业与信托业合作的新途径,在国外已得到广泛研究和发展。在我国目前的金融监管环境和金融机构发展水平下,建立人寿保险信托制度不存在法律障碍,可以采用"保险中介"型的运作模式,由保险公司为保险信托提供中介服务,信托公司担任受托人,最终实现保险客户、保险公司和信托公司三赢的局面。     

Legal Liabilities, Audit Accuracy and the Market for Audit Services

In quality-differentiated audit markets with client-firms of unknown types, insider-managers of client firms strategically select auditors who respond to legal liabilities to decide their care level. In this signaling game, uninformed-investors use the audit report and the auditors' identity for firm valuation. The analysis shows that increased legal liability increases the auditor's effort and audit accuracy but reduces the demand for high quality auditing because, apart from the increased audit costs, the adverse selection benefit of the worse type reduces with increased accuracy. Furthermore, alternative legal regimes and damage allocation rules alter informational efficiency of the financial market.