Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/141823 
Year of Publication: 
2016
Series/Report no.: 
ICIR Working Paper Series No. 21/16
Publisher: 
Goethe University Frankfurt, International Center for Insurance Regulation (ICIR), Frankfurt a. M.
Abstract: 
In this paper, we develop an analytical framework for conducting forward-looking assessments of profitability and solvency of the main euro area insurance sectors. We model the balance sheet of an insurance company encompassing both life and non-life business and we calibrate it using country level data to make it representative of the major euro area insurance markets. Then, we project this representative balance sheet forward under stochastic capital markets, stochastic mortality developments and stochastic claims. The model highlights the potential threats to insurers solvency and profitability stemming from a sustained period of low interest rates particularly in those markets which are largely exposed to reinvestment risks due to the relatively high guarantees and generous profit participation schemes. The model also proves how the resilience of insurers to adverse financial developments heavily depends on the diversification of their business mix. Finally, the model identifies potential negative spillovers between life and non-life business thorugh the redistribution of capital within groups.
Subjects: 
Financial Stability
Insurance
Interest Rate Risk
Stress Test
JEL: 
G20
G22
G23
Document Type: 
Working Paper

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