Modelling net carrying amount of shares for market consistent valuation of life insurance liabilities
Diana Dorobantu (),
Yahia Salhi () and
Pierre-Emmanuel Thérond ()
Additional contact information
Diana Dorobantu: SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Yahia Salhi: SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Post-Print from HAL
The attractiveness of insurance saving products is driven, among others, by dividends payments to policyholders and participation in profits. These are mainly constrained by regulatory measures on profit-sharing on the basis of statutory accounts. Moreover, since both prudential and financial reporting regulation require market consistent best estimate measurement of insurance liabilities, cash-flows projection models have to be used for such a purpose in order to derive the underlying financial incomes. Such models are based on Monte-Carlo techniques. The latter should simulate future accounting profit and losses needed for profit-sharing mechanisms. In this paper we deal with impairment losses on equity securities for financial portfolios which rely on instrument-by-instrument assessment (when projection models consider groups of shares). Our motivation is to describe the joint distribution of market value and impairment provision of a book of equity securities, with regard to the French accounting rules for depreciation. The results we obtain enable to improve the ability of projection models to represent such an asymmetric mechanism. Formally, an impairment loss is recognized for an equity instrument if there has been a significant and prolonged decline in its market value below the carrying cost (acquisition value). Such constraints are formalized using an assumption on the dynamics of the equity, and leads to a complex option-like pay-off. Using this formulation, we propose analytical formulas for some quantitative measurements related the impairments losses of a book of financial equities. These are derived on a general framework and some tractable example are illustrated. We also investigate the operational implementation of these formulas and compare their computational time to a basic simulation approach.
Keywords: Best Estimate Technical Provision; Correlated Brownian Motions; Insurance; Impairment Losses; Joint Density * (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-ias
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01840057
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published in Methodology and Computing in Applied Probability, Springer Verlag, In press
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01840057
Access Statistics for this paper
More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().