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Title:Financing the embedded value of life insurance portfolios PDF Logo
Authors:Hölscher, Luise
Harding, Perham
Becker, Gernot M.
Issue Date:2005
Series/Report no.:Arbeitsberichte der Hochschule für Bankwirtschaft 64
Abstract:In May 2004 the CFO Forum harmonized the various efforts of reporting the embedded valueof life insurance companies by issuing the European Embedded Value (EEV) Principles.In this working paper a methodology is proposed to derive a maximum lending amountfrom EEV figures without much additional data requirements from the originating insurer. The approach chosen is similar to that of other financing areas, e.g. real estate finance, where first a prudent best estimate valuation is done and later risk deductions are performed in the form of applying loan to value ratios, e.g. 60-80 % of the prudent amount. Here, this prudent value is called bankable embedded value and the loan to value analysis presented leads to the maximum lending amount. The deductions proposed to arrive at a maximum lending amount are based on parameter adjustments and risk allowances for unexpected risks. There is an analogy with insurers for determining their own capital needs. The methodology proposed is based on the stress test approach which increasingly gains popularity with insurance supervisors in Europe.
Subjects:European embedded value
embedded value
life insurance policies
maximum lending amount
required capital
risk analysis
risk discount rate
value reporting and analysis
value sensitivity analysis
JEL:G22
M41
Persistent Identifier of the first edition:urn:nbn:de:101:1-20080825154
Document Type:Working Paper
Appears in Collections:Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management

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