Mechanisms of Protection from Interest Rate Risk with Reference to the Life Insurance Market in Montenegro

Milijana Novović Burić (), Vladimir Kašćelan (), Milivoje Radović () and Ana Lalević Filipović ()
Additional contact information
Milijana Novović Burić: University of Montenegro, Faculty of Economics, Podgorica, Montenegro
Vladimir Kašćelan: University of Montenegro, Faculty of Economics, Podgorica, Montenegro
Milivoje Radović: University of Montenegro, Faculty of Economics, Podgorica, Montenegro
Ana Lalević Filipović: University of Montenegro, Faculty of Economics, Podgorica, Montenegro

Journal of Central Banking Theory and Practice, 2018, vol. 7, issue 1, 17-42

Abstract: Insurance companies are facing major challenges that point to the need for control process and risk management. Risk management in insurance has a direct impact on solvency, economic security, and overall financial stability of insurance companies. It is very important for insurance companies to adequately calculate risks to which they are exposed. Asset liability management (ALM), as an integrated approach to financial management, requires simultaneous decision-making about categories and values of assets and liabilities in order to establish the optimum volume and the ratio of assets and liabilities, with the understanding of complexity of the financial market in which financial institutions operate. ALM focuses on a significant number of risks, whereby the emphasis in this paper will be on interest rate risk which indicates potential losses that may reflect in a lower interest margin, a lower value of assets or both, in terms of changes in interest rates. In the above context, the aim of this paper is to show how to protect from interest rate changes and how these changes influence the insurance market in Montenegro, both from the theoretical and the practical point of view. The authors consider this to be an interesting and very important topic, especially because the life insurance market in Montenegro is underdeveloped and subject to fluctuations. Also, taking into account the fact that Montenegro is a country that has been making serious efforts to join the EU, it is expected that insurance companies in Montenegro will strengthen their financial position in the market even using the ALM traditional techniques, which is shown in this paper.

Keywords: insurance market; ALM; reserves; interest rate; immunization; life insurance. (search for similar items in EconPapers)
JEL-codes: G12 G22 M41 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cbcg.me/repec/cbk/journl/vol7no1-2.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:7:y:2018:i:1:p:17-42

Access Statistics for this article

More articles in Journal of Central Banking Theory and Practice from Central bank of Montenegro Contact information at EDIRC.
Bibliographic data for series maintained by ().