The Valuation of Insurance Liabilities: A Framework Based on First Principles
14 Pages Posted: 2 Jun 2019 Last revised: 14 Jan 2020
Date Written: April 24, 2019
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: Suggested Citation