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Risk-Based Pre-Funding of Guaranty Funds in Life Insurance

Author

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  • Lindset Snorre

    (Trondheim Business School, Norway)

Abstract

This paper analyzes how Value at Risk (VaR), a risk measure, can be used to calculate contributions to a life insurance guaranty fund. The paper shows that this measure can be a first step towards taking risk and solidity into account when determining how much each insurer should contribute to the guaranty fund. VaR focuses on the tail of the distribution and is therefore particularly well suited to take the shortfall risk of the guaranty fund into account.

Suggested Citation

  • Lindset Snorre, 2008. "Risk-Based Pre-Funding of Guaranty Funds in Life Insurance," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 2(2), pages 1-10, March.
    • Handle: RePEc:bpj:apjrin:v:2:y:2008:i:2:n:5
    DOI: 10.2202/2153-3792.1022
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    References listed on IDEAS

    as
    1. Grosen, Anders & Lochte Jorgensen, Peter, 2000. "Fair valuation of life insurance liabilities: The impact of interest rate guarantees, surrender options, and bonus policies," Insurance: Mathematics and Economics, Elsevier, vol. 26(1), pages 37-57, February.
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    4. Kenneth A. Froot, 1999. "The Financing of Catastrophe Risk," NBER Books, National Bureau of Economic Research, Inc, number froo99-1.
    5. repec:bla:jfinan:v:43:y:1988:i:4:p:823-39 is not listed on IDEAS
    6. Chen, An & Suchanecki, Michael, 2007. "Default risk, bankruptcy procedures and the market value of life insurance liabilities," Insurance: Mathematics and Economics, Elsevier, vol. 40(2), pages 231-255, March.
    7. Han, Li-Ming & Lai, Gene C. & Witt, Robert C., 1997. "A financial-economic evaluation of insurance guaranty fund system: An agency cost perspective," Journal of Banking & Finance, Elsevier, vol. 21(8), pages 1107-1129, August.
    8. James G. Bohn & Brian Hall, 1999. "The Moral Hazard of Insuring the Insurers," NBER Chapters, in: The Financing of Catastrophe Risk, pages 363-390, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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