The Impact of Interest Rate and Mortality Risks on the Solvency Situation of Life Insurance Companies

Project Start:02/2014
Status:Completed
Researchers:Helmut Gründl
Category: Financial Intermediation
Funded by:DVfVW

The goal of the proposed project is to investigate the solvency situation of life insurance companies that are exposed to interest rate and mortality risks. We aim to assess and quantify risks with a model as close as possible to reality. This includes mapping the typical investment structure of life insurance companies in Europe with underlying stochastic capital markets. On the liability side of the balance sheet we want to reproduce a realistic structure of the existing business and the changes taking place over time, which includes the dynamics of expiring contracts as well as new business. We then assess the risk situation of life insurance companies under different interest rate scenarios and mortality developments. Moreover, by means of stochastic simulations we model possible reactions of the management of life insurance companies that affect their risk position. In particular, we want to consider this investment policy and the product design (the guaranteed minimum return in particular).

The plan is to divide the project in two sub-projects, each one with the final aim of a scientific paper to be presented at international conferences and to be published in internationally visible scientific journals.

Another goal is to derive implications for the management, the regulatory and monetary authorities. Our results should contribute to a better understanding of the (long-term) profitability of the life insurance business as well as a better understanding of potential side effects of low interest rate environments.

Related Published Papers

Author/sTitleYearProgram AreaKeywords
Elia Berdin, Helmut GründlThe Effects of a Low Interest Rate Environment on Life Insurers
The Geneva Papers on Risk and Insurance: Issues and Practice
2015 Financial Intermediation Life Insurers, Interest Rate Guarantees, Risk Assessment, Solvency II

Related Working Papers

No.Author/sTitleYearProgram AreaKeywords
65Elia Berdin, Helmut GründlThe Effects of a Low Interest Rate Environment on Life Insurers2014 Financial Intermediation Life Insurers, Interest Rate Guarantees, Risk Assessment, Solvency II
137Elia Berdin, Christoffer Kok, Cosimo PancaroA Stochastic Forward-Looking Model to Assess the Profitability and Solvency of European Insurers2016 Financial Intermediation Financial Stability, Insurance, Interest Rate Risk, Stress Test

Related Policy Publications

AuthorTitlePublished
Stellungnahme zum Entwurf eines Gesetzes zur Absicherung stabiler und fairer Leistungen für Lebensversicherte
Policy Letter No. 29
2014
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