The IASB Insurance Project for life insurance contracts: Impact on reserving methods and solvency requirements

Ballotta, L., Esposito, G. & Haberman, S. (2006). The IASB Insurance Project for life insurance contracts: Impact on reserving methods and solvency requirements. Insurance: Mathematics and Economics, 39(3), pp. 356-375. doi: 10.1016/j.insmatheco.2006.04.004

Abstract

In this communication, we review the fair value-based accounting framework promoted by the IASB Insurance Project for the case of a life insurance company. In particular, for the case of a simple participating contract with minimum guarantee, we show that the fair valuation process allows for the identification of a suitable safety loading to hedge against default risk; furthermore, we show that, when compared with the “traditional” accounting system based on the construction of mathematical reserves, the fair value approach offers a sounder reporting framework in terms of covering of the liability, implementation costs, volatility of assets and liabilities and solvency capital requirements.

Publication Type:	Article
Additional Information:	© 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords:	Black–Scholes option pricing formula; Fair value; Lévy processes; Mathematical reserves; Participating contracts; Shortfall probability; Solvency requirements
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Actuarial Science & Insurance > Actuarial Research Reports