Replication of Insurance Liabilities

19 Pages Posted: 4 Oct 2009 Last revised: 5 Feb 2010

See all articles by Elena Gutiérrez Vidal

Elena Gutiérrez Vidal

RiskMetrics Group

Stéphane Daul

Pictet Asset Management; affiliation not provided to SSRN

Date Written: February 9, 2009

Abstract

Finally, Stéphane Daul and Elena Gutíerrez Vidal present a set of case studies on insurance liability replication. Under modern valuation conventions, insurance firms increasingly use market-consistent techniques to value both their assets and liabilities. Consequently, the market sensitivities of both sides of the balance sheet contribute to economic capital and surplus-at-risk. Computing such risk measures, or for that matter managing the market risk sensitivities at all, presents significant practical issues, stemming largely from the complexity of insurance products. One means to address these difficulties is to represent the insurance liability portfolios using standard financial instruments. Stéphane and Elena present a procedure to construct such replicating portfolios, and examine a number of practical issues with the procedure through two actual insurance liability portfolios.

JEL Classification: G10

Suggested Citation

Vidal, Elena Gutiérrez and Daul, Stéphane and Daul, Stéphane, Replication of Insurance Liabilities (February 9, 2009). RiskMetrics Journal Vol. 9, No. 1, Winter 2009, Available at SSRN: https://ssrn.com/abstract=1481845

Elena Gutiérrez Vidal

RiskMetrics Group

1 Chase Manhattan Plaza
New York, NY
United States

Stéphane Daul (Contact Author)

Pictet Asset Management ( email )

Geneva
Switzerland

affiliation not provided to SSRN

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