QIS4: significant improvements, but the main risk for life insurance is not taken into account in the standard formula

In its response to the CEIOPS consultation on the preliminary technical specifications for the fourth quantitative impact survey (QIS4), EDHEC argues that the main risk faced by life insurance companies is not taken into account in the standard formula.

Auteur(s) :

Samuel Sender

Research Associate with the EDHEC Risk and Asset Management Research Centre

Présentation :

This risk is that following market (or other significant) losses, a wave of surrenders leaves shareholders bearing the entirety of losses. This is the phenomenon that led to such bankruptcies as that of Executive Life, where losses made public by rating agencies and the media triggered a wave of surrenders and bankruptcy-even though the losses alone were thought bearable for some time. In this paper, we argue that such a combined risk can be taken into account only in a scenario in which high levels of surrenders are combined with market losses, and that market losses alone merely added to surrenders alone may not suggest any need for shareholder capital. We also argue that QIS4 has resulted in substantial practical improvements to the standard formula-in particular, guidelines as well as proxies that will allow the participation of smaller companies or of less strategic lines of business. These improvements are in line with our past recommendations for clear guidelines, as in previous works we pointed out that diverging interpretations of the necessary calculations could lead to significant differences in capital requirements as well as to an inability to compare results across insurance companies and countries. The recognition of geographical diversification within life and non-life lines of business is likewise a great improvement.
Pdf
QIS4: significant improvements, but the main risk for life insurance is not take...
(1.06 MB)
Type : Position paper
Date : le 19/02/2008
Complément d'informations Ce document constitue une synthèse de travaux scientifiques conduits au sein de l'EDHEC. Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay de la direction de la recherche de l'EDHEC : joanne.finlay@edhec.edu Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Pôle de recherche Finance

A voir également

- 11-07-2017
Après avoir exploré la multiculturelle Kuala Lumpur en janvier, les participants de l’Executive MBA de l’EDHEC de Lille et Paris se sont envolés pour un business trip à San Francisco, du 19...
EDHEC Business School s’affirme comme leader en entrepreneuriat
- 03-07-2017
Le Financial Times publie aujourd’hui le classement des meilleurs Global MBA en...
Une inauguration réussie de Station F en presence d’Emmanuel Macron et de l’EDHEC
- 29-06-2017
L’EDHEC a annoncé en mai dernier avoir rejoint Station F, le plus grand campus de start...
Classement Financial Times: #1 Master en Finance dans le monde
- 19-06-2017
EDHEC, 1er Master en Finance dans le monde selon le Financial Times dans son classement...