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1993 | Buch

Life Insurance and the Question of Solvency Kapitel lesen Erstes Kapitel lesen

Financial Management of Life Insurance Companies

herausgegeben von: J. David Cummins, Joan Lamm-Tennant

Verlag: Springer Netherlands

Buchreihe : Catastrophe Modeling

Enthalten in: Professional Book Archive

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Über dieses Buch

th This book is published to commemorate the 50 Anniversary of the S.S. Huebner Foundation for Insurance Education. Administered at the Wharton School of the University of Pennsylvania, the Huebner Foundation was established in 1941 to strengthen insurance education at the collegiate level by increasing the number of professors specializing in insurance and enriching the literature in the field. The financial support of leading life insurance companies has enabled the Foundation to provide post-graduate education for prospective insurance teachers and scholars. Through its fellowship program, the Foundation supports students in the Ph.D. program in Risk and Insurance at the Wharton School. The success of the Foundation is measured by the accomplishments of its alumni. Former Huebner Fellows play leading roles in every major area of insurance education. Fellows teach insurance to tens of thousands of undergraduate and MBA students each year and have written hundreds of books and thousands of articles on insurance. Fellows hold leadership positions at the American College, the Life Office Management Association, and the Certified Employee Benefit Specialist Program. The Foundation was created in honor of Dr. Solomon S. Huebner, a pioneer in insurance education. Dr. Huebner taught the first organized course on the economics of insurance ever offered at the collegiate level in 1904. An internationally recognized author and teacher, Dr. Huebner had a profound impact on both insurance education and the insurance industry. He served on the faculty of the Wharton School for more than nearly fifty years.

Inhaltsverzeichnis

Frontmatter
1. Life Insurance and the Question of Solvency
Abstract
I am not sure there are any serious issues confronting the life insurance industry these days, unless of course you consider solvency, liquidity, junk bonds, deteriorating mortgage and real estate portfolios, risk-based capital requirements, asset mix, separate accounts, credit risk, Congressional inquiries, shrinking surplus, demutualization and more.
Salvatore R. Curiale
2. Considerations in a Mutual Life Insurance Company Conversion
Abstract
This chapter focuses on the issues involved in a conversion of a life insurance company from mutual to stock form. This is a subject to which I have given a great deal of thought and attention in recent years, including service as Chairman of the Society of Actuaries Task Force on Mutual Life Insurance Company Conversions and as a member of the LICONY (Life Insurance Council of New York) group that helped to design New York State’s demutualization law. I am particularly pleased to see this work bear fruit for my own company which successfully implemented mutual-to-stock conversion during 1992.
Harry D. Garber
3. Banking and Insurance: A Banking Industry Perspective
Abstract
Banks have designs on the insurance industry -- that’s the perspective of many in the financial service industry. The evidence seems clear. Money center institutions have been pushing for insurance powers at the national level. They have convinced state banking authorities, such as those in Delaware, to permit bank holding companies to have the right to market insurance nationwide. And in Europe, there is a full-scale conglomeration of universal banking and the insurance industry.1
Anthony M. Santomero
4. The Myths and Reality of Low-Grade Bonds
Abstract
This paper updates through June 1991 the authors’ prior research on low-grade bonds. The paper finds further support for the hypothesis that low-grade bonds behave sometimes like high-grade bonds and sometimes like small stocks. Much of the drop in the prices of low-grade bonds in the last half of 1990 and the subsequent increase in the first half of 1991 parallel the price movements of small stocks. Also consistent with our earlier work, the volatility of low-grade bonds is less than that of high-grade corporates or long-term governments. The shorter “duration” of low-grade bonds accounts for this counter-intuitive result.
Marshall E. Blume, Donald B. Keim
5. The Paradox of Performance Measurement
William H. Panning
6. Estimating Divisional Cost of Capital for Insurance Companies
Abstract
In a competitive market, what should the rate of return on insurance companies’ equity be? What premiums should insurance companies charge? Traditionally, the answers to these questions have been based on actuarial and accounting concepts.1 More recently financial models of the insurance firm have been developed. Ferrari (1968) suggested a descriptive model which allowed an algebraic expression for the rate of return on equity as a function of the premiums charged to be derived. Combining this with the capital asset pricing model (CAPM) meant that an equilibrium value for the return on equity and the corresponding level of premiums could be found. This model is known as the insurance CAPM.2 The development of other asset pricing models in finance has also led to insurance counterparts. Thus the Arbitrage Pricing Theory, and option pricing models have been used to derive the return on equity and the level of premiums.3 Although the approaches based on asset pricing models have advantages compared to those based on traditional actuarial and accounting concepts, they are not ideal. One of the most important problems is that they are not well suited for finding premiums when an insurance company has multiple divisions. The difficulty is that it is not clear how earnings on reserves should be allocated among the various divisions of the firm.
Franklin Allen
7. Corporate Risk Management and the Insurance Industry
Abstract
There are at least two reasons that corporate risk management is important for firms in the insurance industry: (1) An insurance company’s value depends directly on its risk-management policy. (2) The asset risk in an insurance company’s loan portfolio depends on its customers’ risk-management policies. In this paper, I analyze these implications of corporate risk-management for life insurance companies. In section 2, I suggest that corporate risks can be arrayed along a spectrum. At one extreme are firm-specific risks while at the other are market-wide risks. I note that forwards, futures, options, and swaps are specialized risk-management tools that allow the firm to hedge many sources of market-wide financial risk. In addition to these off-balance-sheet hedging alternatives, financially engineered instruments, such as dual-currency bonds, provide on-balance-sheet hedging alternatives. In section 3, I focus on motives for value-maximizing firms to purchase such specialized risk-management instruments. This section thus identifies the implications of hedging by customers for the insurer’s asset portfolio risk. Section 4 examines the implications of life insurer risk-management policies. In section 5, I present my conclusions.
Clifford W. Smith Jr.
8. Asset/Liability Management: From Immunization to Option-Pricing Theory
Abstract
It was nearly forty years ago when the eminent British actuary F.M. Redington published the paper “Review of the Principles of Life-Office Valuations,” in which he suggested the principle that there should be equal and parallel treatment in the valuation of assets and liabilities. His theory of immunization for insulating a portfolio against interest rate fluctuations follows as an immediate consequence of this principle. A deficiency in Redington’s model is the assumption that the asset and liability cash flows are fixed and certain. In this paper we show that his theory can be extended to the general case of interest-sensitive cash flows (SPDA, UL, MBS, etc.) by means of modern option-pricing theory.
Elias S. W. Shiu
9. Scorekeeping in the 1990’s: Financial Issues of Multinational Insurance Organizations
Abstract
To identify the primary financial issues considered to be most important by the world’s leading multinational insurance organizations, we reviewed the 1990 annual statements of 29 of them. Companies from the U.S., Canada, U.K., Germany, France, Netherlands, Belgium, Italy, Switzerland, Japan and Australia were included. The companies were selected on the basis of their involvement in life and pension insurance markets, but most of them are also major participants in non-life insurance and other financial service markets. The annual reports covered a wide range of issues, but each organization chose particular issues and operating results to highlight. Comments to follow are limited to what can be readily determined from these public documents.
Michael Touhy, Andrew Giffin
Metadaten
Titel
Financial Management of Life Insurance Companies
herausgegeben von
J. David Cummins
Joan Lamm-Tennant
Copyright-Jahr
1993
Verlag
Springer Netherlands
Electronic ISBN
978-94-011-2208-5
Print ISBN
978-94-010-4979-5
DOI
https://doi.org/10.1007/978-94-011-2208-5