The Valuation of Insurance Liabilities: A Framework Based on First Principles

14 Pages Posted: 2 Jun 2019 Last revised: 14 Jan 2020

See all articles by Andrea Bergesio

Andrea Bergesio

Department of Banking and Finance; Swiss Finance Institute

Paul Huber

Swiss Re

Pablo Koch-Medina

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Lutz Wilhelmy

Swiss Re

Date Written: April 24, 2019

Abstract

We describe a framework for the valuation of insurance liabilities that relies on first principles in finance theory. Key features of the economic value of liabilities are its market-consistency and the inclusion of the costs of financial frictions. We compare this framework to the Solvency II approach and highlight the differences.

Keywords: Insurance, Valuation, Financial Frictions, Market Consistency, Solvency II

JEL Classification: G22, G32

Suggested Citation

Bergesio, Andrea and Huber, Paul and Koch-Medina, Pablo and Wilhelmy, Lutz, The Valuation of Insurance Liabilities: A Framework Based on First Principles (April 24, 2019). Swiss Finance Institute Research Paper No. 20-03. Available at SSRN: https://ssrn.com/abstract=3386182 or http://dx.doi.org/10.2139/ssrn.3386182

Andrea Bergesio

Department of Banking and Finance ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Paul Huber

Swiss Re ( email )

Mythenquai 50/60
P.O. Box
CH-8022 Zurich
Switzerland

Pablo Koch-Medina (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Lutz Wilhelmy

Swiss Re ( email )

Mythenquai 50/60
P.O. Box
Zurich, CH-8022
Switzerland

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