LONGEVITY RISK MANAGEMENT AND SHAREHOLDER VALUE FOR A LIFE ANNUITY BUSINESS

2016 ◽  
Vol 47 (1) ◽  
pp. 43-77 ◽  
Author(s):  
Craig Blackburn ◽  
Katja Hanewald ◽  
Annamaria Olivieri ◽  
Michael Sherris
Keyword(s):  
Risk Management ◽  
Shareholder Value ◽  
Capital Requirements ◽  
Demand Elasticity ◽  
Longevity Risk ◽  
Risk Transfer ◽  
Life Annuity ◽  
Life Insurer ◽  
The Cost ◽  
The Impact

AbstractThe life annuity business is heavily exposed to longevity risk. Risk transfer solutions are not yet fully developed, and when available they are expensive. A significant part of the risk must therefore be retained by the life insurer. So far, most of the research work on longevity risk has been mainly concerned with capital requirements and specific risk transfer solutions. However, the impact of longevity risk on shareholder value also deserves attention. While it is commonly accepted that a market-consistent valuation should be performed in this respect, the definition of a fair shareholder value for a life insurance business is not trivial. In this paper, we develop a multi-period market-consistent shareholder value model for a life annuity business. The model allows for systematic and idiosyncratic longevity risk and includes the most significant variables affecting shareholder value: the cost of capital (which in a market-consistent setting must be quantified in terms of frictional and agency costs, net of the value of the limited liability put option), policyholder demand elasticity and the cost of alternative longevity risk management solutions, namely indemnity-based and index-based solutions. We show how the model can be used for assessing the impact of different longevity risk management strategies on life insurer shareholder value and solvency.

scholarly journals Recent Cost Increases: Their Future Impacts on Agriculture

1975 ◽  
Vol 7 (1) ◽  
pp. 71-79
Author(s):  
Wayne A. Boutwell ◽  
Thomas W. Little
Keyword(s):  
Agricultural Production ◽  
Agricultural Sector ◽  
Price Level ◽  
Capital Requirements ◽  
Farm Income ◽  
Agricultural Commodities ◽  
Domestic Prices ◽  
The Cost ◽  
The Impact ◽  
Input Prices

The impact of rapidly escalating input prices of farm income, agricultural production, production adjustments, the general price level, the cost of living and capital requirements in the agricultural sector is a source of increasing concern to farmers, suppliers of capital to agriculture, and consumers of agricultural products. Record prices for agricultural commodities, such as feed grains and soybeans, partially masked the effects of a 52 percent increase in the index of prices paid for production items on net farm income during the period 1971–74. As agricultural machinery and farm buildings are replaced, world stocks of agricultural commodities are replenished, and domestic prices begin to decline, the magnitude of these cost increases will become more apparent.

scholarly journals Weather Risk Management in Energy Sector: The Polish Case

Energies ◽  
2020 ◽  
Vol 13 (4) ◽  
pp. 945
Author(s):  
Monika Wieczorek-Kosmala
Keyword(s):  
Risk Management ◽  
Energy Sector ◽  
Annual Reports ◽  
Research Approach ◽  
Weather Derivatives ◽  
Weather Risk ◽  
The Cost ◽  
Energy Companies ◽  
Weather Risk Management ◽  
The Impact

The energy sector is perceived as one of the most exposed sectors to the consequences of weather risk both directly (damages of its infrastructure) and indirectly (frictions to the energy supply–demand balance). The main aim of this paper is to provide an insight into the impact of weather risk on economic activity of companies operating in the energy sector in Poland. The empirical objective is to examine whether energy companies: (i) identify their relevant weather risk exposures; (ii) evaluate the impact of weather risk in the cost-revenues dimension; and (iii) implement weather risk management tools, in this case—weather derivatives. In a methodical context, this study relies on a unique research approach and derives from works that examine companies’ risk disclosures in annual reports, by applying textual content analysis. The results indicate that Polish energy companies recognize the impact of weather risk on their performance, also in the cost-revenues dimension. However, although the reported weather risk management methods were diversified, the examined companies did not use weather derivatives to hedge their weather risk exposures. In the overall dimension, the companies leading with the perception and management of weather risk were diversified regarding performance and market size.

scholarly journals ECONOMICS AND RISK MANAGEMENT OF BIOFUEL PRODUCTION IN AGRICULTURE

2021 ◽  
Vol 2 (37) ◽  
pp. 271-279
Author(s):  
I. Perevozova ◽  
Iu. Samoilyk ◽  
О. Radchenko ◽  
N. Shportiuk ◽  
M. Demydova
Keyword(s):  
Risk Management ◽  
Alternative Fuels ◽  
Production Management ◽  
Jel Classification ◽  
Climatic Conditions ◽  
Biofuel Production ◽  
Limit Values ◽  
Agricultural Enterprises ◽  
The Cost ◽  
The Impact

Abstract. The development of the biofuel market in the world has a positive dynamic for growth. The substantiation of the directions of further improvement of the methodology of production management of alternative fuels is taking into account the policy of climate change and the possibility of reducing dependence on external suppliers of traditional fuels. Ukraine has favorable natural and climatic conditions for the development of production of non-traditional fuels. The most common crops that can be grown in Ukraine for biofuels are rapeseed and corn. Based on the material and technical base and production conditions, rapeseed is the best crop for cultivation. Therefore, the object that we have chosen for this study is the production of biodiesel, which does not require significant capital expenditures by agricultural enterprises. For the purposes of the study, the risks were grouped according to various classification criteria (operational and production; marketing; financial; legal and infrastructural; weather; environmental) and the weights of their impact on the performance of agricultural enterprises. The structural scheme of the algorithm of the automated estimation of influence of risk factors for development of bases of the analysis and management of risks of production of biodiesel is constructed. The author's method of calculating the impact of the risk complex takes into account the limit values of the intervals of fuzzy quantities. To preserve soil fertility and reduce the corresponding risks, the proportion of rapeseed in growing areas should be at the limit of 17—18% (when also growing sunflower the upper limit is 12%), then all three analyzed farms can not only use their own land for rapeseed crops, but also, if necessary, rent the necessary plot, or, according to the results of the relevant analysis, its part. In some cases, farms even purchase some of the seeds needed to load the equipment. The results of calculations of the cost of production of biofuels showed that the increase in the cost for small and medium producers is not significant compared to large producers. Keywords: biofuels, biodiesel, risk management, agricultural enterprises, risk management, efficiency. JEL Classification O13, Q42 Formulas: 6; fig.: 1; tabl.: 5; bibl.: 19.

scholarly journals Impact of Credit Risk Transfer Techniques on Lending Behavior of Conventional & Islamic Banks in Pakistan

2017 ◽  
Vol 4 (2) ◽  
pp. 12 ◽  
Author(s):  
Yusra Saeed ◽  
Huma Ayub
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Random Effect ◽  
Random Effect Model ◽  
Policy Implications ◽  
Islamic Banks ◽  
Risk Transfer ◽  
Management Techniques ◽  
Conventional Banks ◽  
The Impact

Application of risk management techniques gain significant importance after the financial crises of 2008. Banks adopt contemporary risk management techniques to eliminate credit risk associated with the enlargement of their lending volume. The present study aims to analyze the impact of credit derivatives on lending/financing behavior of conventional and Islamic banks of Pakistan. The study used comparative analysis by employing random effect model for the sample of 20 conventional banks and pooled OLS regression on sample size of 5 Islamic banks for the period of 2006-2016. Results of the study show that conventional banks effectively increase their lending volumes by utilizing risk transfer techniques. However, Islamic banks are still at its infancy in utilizing risk transfer techniques due to shariah restrictions. The study recommends policy implications for Islamic bank to introduce innovative shariah compliant hedging instruments to boost their financing portfolios.

Catastrophe risk, reinsurance and securitized risk-transfer solutions: a review

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yang Zhao ◽  
Jin-Ping Lee ◽  
Min-Teh Yu
Keyword(s):  
Risk Management ◽  
Insurance Industry ◽  
Long Term Effects ◽  
Insurance Demand ◽  
Content Type ◽  
Risk Transfer ◽  
Natural Catastrophes ◽  
Structural Framework ◽  
Hybrid Solutions ◽  
The Impact

PurposeCatastrophe (CAT) events associated with natural catastrophes and man-made disasters cause profound impacts on the insurance industry. This research thus reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk.Design/methodology/approachThis research reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk. Apart from many negative influences, CAT events can increase the net revenue of the insurance industry around CAT events and improve insurance demand over the post-CAT periods. The underwriting cycle of reinsurance causes inefficiencies in transferring CAT risks. Securitized risk-transfer instruments resolve some inefficiencies of the reinsurance market, but are subject to moral hazard, basis risk, credit risk, regulatory uncertainty, etc. The authors introduce some popular securitized solutions and use Merton's structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.FindingsThe authors introduce some popular securitized solutions and use Merton's structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.Originality/valueThis research reviews a broad array of impacts of CAT risks on the (re)insurance industry. CAT events challenge (re)insurance capacity and influence insurers' supply decisions and reconstruction costs in the aftermath of catastrophes. While losses from natural catastrophes are the primary threat to property–casualty insurers, the mortality risk posed by influenza pandemics is a leading CAT risk for life insurers. At the same time, natural catastrophes and man-made disasters cause distinct impacts on (re)insures. Man-made disasters can increase the correlation between insurance stocks and the overall market, and natural catastrophes reduce the above correlation. It should be noted that huge CAT losses can also improve (re)insurance demand during the postevent period and thus bring long-term effects to the (re)insurance industry.

Global Impacts of the Asian Logistics Competitiveness and Risk Management

2013 ◽  
Vol 785-786 ◽  
pp. 1511-1515 ◽  
Author(s):  
Chi Fang Liu ◽  
Tzu Yorn Kao ◽  
Ya Fen Chang ◽  
Yi Ru Tsai
Keyword(s):  
Risk Management ◽  
Asian Countries ◽  
Global Impacts ◽  
Link Cost ◽  
The Cost ◽  
The Impact ◽  
Development Crisis

The impact of the Asian countries logistics development crisis was significant enough to reduce the overall logistics link cost for logistics chain. Although the impact of the Asian countries logistics link crisis was how to reduce the cost, but what is the important factors to reduce? Which could be depend on for starting reduce logistics activities.

Comparing Solvency II and Life and General Insurance Capital approaches to capital determination of a life portfolio in the presence of stress scenarios

2018 ◽  
Vol 13 (1) ◽  
pp. 36-66
Author(s):  
Kangjing Tan ◽  
Aaron Bruhn
Keyword(s):  
Risk Management ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Life Insurers ◽  
General Insurance ◽  
Pillar Structure ◽  
Matching Adjustment ◽  
The Impact ◽  
Capital Intensive

AbstractThe European-centric Solvency II and Australian-centric Life and General Insurance Capital regimes are two examples of risk-based approaches to capital determination and risk management for life insurers. Both consist of a three-pillar structure covering capital, risk management and disclosure requirements. We apply the capital requirements of each regime to three synthetic sets of insurance policies, including a risk, annuity and combined portfolios, and consider the impact on capital arising from three separate and relatively severe stress events. Results highlight the relatively capital intensive nature of annuities, the differences between different capital regimes, the significance of solvency II’s matching adjustment and the robustness of each regime to both pandemic and economic stresses. Results also highlight the nature of diversification benefits from within each capital regime, on overall capital requirements.

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