English, Article, Journal or magazine article edition: Asset/Liability Management of German Life Insurance Companies: A Value-at-Risk Approach in the Presence of Interest Rate Guarantees Albrecht, Peter; Weber II, Carsten

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Bookmark: http://trove.nla.gov.au/version/43503
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Asset/​Liability Management of German Life Insurance Companies: A Value-at-Risk Approach in the Presence of Interest Rate Guarantees
Author
  • Albrecht, Peter
  • Weber II, Carsten
Physical Description
  • preprint
Notes
  • This contribution analyses the implications of two major determinants influencing the asset allocation decision of German life insurers, which are the capital market development on the one hand and the interest rate guarantees of the traditional life insurance policies on the other hand. The adverse development of the stock prices between 2000 and 2002 asks for a consideration of not only the �normal� volatility but also the worst-case developments in an asset/​liability management. In order to meet the latter requirement, we technically apply the risk measures of Value-at-Risk and Conditional Value-at-Risk. German life insurance policies incorporate interest rate guarantees, which are granted on an annual basis. This specific �myopic� nature of guarantees creates � beyond the control of the shortfall risk in general � the necessity to manage the asset allocation on an annual basis to match the time horizon of assets and liabilities. A quantitative approach analyses the impacts on the asset allocation decision. In our research we do not only consider market valuation, but also institutional peculiarities (such as hidden reserves and accounting norms) of German life insurers. We reveal the possibility of a riskless one-year investment, either based on market values or on book values, to be crucial for guaranteeing interest rates on an annual basis.
  • RePEc:xrs:sfbmaa:03-19
Language
  • English
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