Longevity risk, cost of capital and hedging for life insurers under Solvency II

<?xml version="1.0" encoding="UTF-8"?><collection xmlns="http://www.loc.gov/MARC21/slim" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance" xsi:schemaLocation="http://www.loc.gov/MARC21/slim http://www.loc.gov/standards/marcxml/schema/MARC21slim.xsd">
  <record>
    <leader>00000cab a2200000   4500</leader>
    <controlfield tag="001">MAP20140014415</controlfield>
    <controlfield tag="003">MAP</controlfield>
    <controlfield tag="005">20140530111619.0</controlfield>
    <controlfield tag="008">140424e20140303esp|||p      |0|||b|spa d</controlfield>
    <datafield tag="040" ind1=" " ind2=" ">
      <subfield code="a">MAP</subfield>
      <subfield code="b">spa</subfield>
      <subfield code="d">MAP</subfield>
    </datafield>
    <datafield tag="084" ind1=" " ind2=" ">
      <subfield code="a">6</subfield>
    </datafield>
    <datafield tag="100" ind1="1" ind2=" ">
      <subfield code="0">MAPA20130014067</subfield>
      <subfield code="a">Meyricke, Ramona</subfield>
    </datafield>
    <datafield tag="245" ind1="1" ind2="0">
      <subfield code="a">Longevity risk, cost of capital and hedging for life insurers under Solvency II</subfield>
      <subfield code="c">Ramona Meyricke, Michael Sherris</subfield>
    </datafield>
    <datafield tag="520" ind1=" " ind2=" ">
      <subfield code="a">The cost of capital is an important factor determining the premiums charged by life insurers issuing life annuities. This capital cost can be reduced by hedging longevity risk with longevity swaps, a form of reinsurance. We assess the costs of longevity risk management using indemnity based longevity swaps compared to costs of holding capital under Solvency II. We show that, using a reasonable market price of longevity risk, the market cost of hedging longevity risk for earlier ages is lower than the cost of capital required under Solvency II. Longevity swaps covering higher ages, around 90 and above, have higher market hedging costs than the saving in the cost of regulatory capital. The Solvency II capital regulations for longevity risk generates an incentive for life insurers to hold longevity tail risk on their own balance sheets, rather than transferring this to the reinsurance or the capital markets. This aspect of the Solvency II capital requirements is not well understood and raises important policy issues for the management of longevity risk.</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080555016</subfield>
      <subfield code="a">Longevidad</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080564254</subfield>
      <subfield code="a">Solvencia II</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080539863</subfield>
      <subfield code="a">Swaps</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080563790</subfield>
      <subfield code="a">Predicciones</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080602437</subfield>
      <subfield code="a">Matemática del seguro</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080570590</subfield>
      <subfield code="a">Seguro de vida</subfield>
    </datafield>
    <datafield tag="650" ind1=" " ind2="4">
      <subfield code="0">MAPA20080575281</subfield>
      <subfield code="a">Coste del riesgo</subfield>
    </datafield>
    <datafield tag="700" ind1="1" ind2=" ">
      <subfield code="0">MAPA20080179083</subfield>
      <subfield code="a">Sherris, Michael</subfield>
    </datafield>
    <datafield tag="773" ind1="0" ind2=" ">
      <subfield code="w">MAP20077100574</subfield>
      <subfield code="t">Insurance : mathematics and economics</subfield>
      <subfield code="d">Oxford : Elsevier, 1990-</subfield>
      <subfield code="x">0167-6687</subfield>
      <subfield code="g">03/03/2014 Volumen 55 Número 1 - marzo 2014 , p. 147-155</subfield>
    </datafield>
  </record>
</collection>