The Impact of private equity on a life insurer's capital charges under Solvency II and the Swiss solvency test

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<title>Impact of private equity on a life insurer's capital charges under Solvency II and the Swiss solvency test</title>
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<namePart>Schmeiser, Hato</namePart>
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<namePart>Siegel, Caroline</namePart>
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<abstract displayLabel="Summary">In this article, we conduct an in-depth analysis of the impact of private equity investments on the capital requirements faced by a representative life insurance company under Solvency II as well as the Swiss Solvency Test. Our discussion begins with an empirical performance measurement of the asset class over the period from 2001 to 2010, suggesting that limited partnership private equity funds may be suited for the purpose of portfolio enhancement. Subsequently, we review the market risk standard approaches set out by both regulatory regimes and outline a potential framework for an internal model. Based on an implementation of these solvency models, it is possible to demonstrate that private equity is overly penalized by the standard approaches. Hence, life insurers aiming to exploit the asset class's return potential may expect significantly lower capital charges when applying an economically sound internal model. Finally, we show that, from a regulatory capital perspective, it can even be less costly to increase the exposure to private rather than public equity.</abstract>
<note type="statement of responsibility">Alexander Braun, Hato Schmeiser, Caroline Siegel</note>
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<topic>Solvencia II</topic>
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<topic>Inversiones privadas</topic>
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<topic>Seguro de vida</topic>
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<topic>Empresas de seguros</topic>
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<topic>Capital riesgo</topic>
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<topic>Tests de solvencia</topic>
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<title>The Journal of risk and insurance</title>
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<publisher>Nueva York : The American Risk and Insurance Association, 1964-</publisher>
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<identifier type="issn">0022-4367</identifier>
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<text>03/03/2014 Volumen 81 Número 1 - marzo 2014 , p. 113-158</text>
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