scholarly journals INVESTMENT RISKS OF INSURANCE COMPANIES THROUGH THE PRISM OF DOMESTIC PRACTICE

2017 ◽  
pp. 34-47
Author(s):  
Tetiana PYSMENNA
Keyword(s):  
Insurance Companies ◽  
Investment Risk ◽  
Investment Strategies ◽  
Insurance Company ◽  
Investment Activity ◽  
Market Risks ◽  
Domestic Practice ◽  
Funds Allocation ◽  
Positive Results ◽  
Different Levels

Introduction. In modern conditions insurance companies has engaged in investment activity under various risks. Management of insurance company can’t influence the market risks. Insurance company can apply the methods of risk management in investment activity. Purpose. The purpose of scientific research is to find out the essence and composition of investment risks of insurance company. Results. The essence of the investment risk of insurance company is found out. The position of investment activity of insurance company along insurance activity under different scientific views is determined. Aggressive, conservative and moderately conservative investment strategies of insurance companies are characterized. The main indicators of investment activity of domestic insurance companies are analyzed. The types of investment risk of insurance company are determined. The main methods of neutralizing the risk of investment activity of insurance company are established. Conclusion. It is concluded that the essence of the investment risk of insurance company belongs to a number of controversial ones. Established, that insurance and investment activities of insurance company are closely linked. It has been found, that aggressive, conservative and moderately conservative investment strategies of insurance companies are different levels of profitability and risk of funds allocation. Over the last years the investment activity of domestic insurance companies showed almost stable positive results. Summarized, that investment risks, associated with incompetent management, the most threaten to insurance company. Avoidance, limitation and diversification are the main methods of neutralizing the risks in investing activity of insurance companies.

scholarly journals INNOVATIVE MANAGEMENT STRATEGIES BY ACTIVITIES OF INSURANCE COMPANIES: INTERNATIONAL AND NATIONAL CONTEXT

2021 ◽  
pp. 65-70
Author(s):  
Vilenchuk O.
Keyword(s):  
Business Processes ◽  
Insurance Coverage ◽  
Management Strategies ◽  
Insurance Market ◽  
Insurance Companies ◽  
Insurance Company ◽  
Investment Activity ◽  
Innovative Strategies ◽  
Innovative Management

This review article is devoted to the study of innovative strategies for managing the activities of insurance companies. In the condi-tions of risky environment, rather high probability occurrence of threats of natural and technogenic character, problems concerning the necessity of a scientific substantiation of the process of the insurance market stakeholders’ interaction aggravate. It is established that insurance in the world economic space is an indispensable financial and economic tool for neutralizing a variety of risks, especially given today’s the socio-economic, financial, epidemiological dangers. It is proved that despite the key parameters’ positive dynamics of the Ukrainian insurance market development for 2009-2019, there is a need to intensify business and investment activity of its participants. The competitive environment of the insurance market requires insurance companies to implement innovative management strategies focused primarily on solving two interrelated problems: firstly, the expansion of property risks’ insurance coverage, as well as risks related to citizens’ life, health and ability to work, secondly, the formation of the insurers’ solvency and ensuring an acceptable level of insurance operations’ profitability in terms of certain types of insurance. It is determined that one of the primary tasks of the insurance company’s management is the management of its business processes aimed at forming a model of customer-oriented behaviour in relation to potential customers. The article emphasizes the need to use a variety of innovative management strategies to achieve medium-term and long-term goals of the company in the insurance market. In particular, the expediency of diversification and the use of alternative pricing strategies for insurance services for long-term and general types of insurance is argued. Proposals aimed at digitalization of the insurance market and wide application of FinTech technologies in the field of insurance services are formulated: automated underwriting, IOT-technologies; blockchain in insurance. Summarizing the results of the study, the author’s vision of the further insurance relations’ functioning of in society is specified. Keywords: risks, insurance company, insurers, insurance protection, insurance market stakeholders, management. Статтю присвячено дослідженню інноваційних стратегій управління діяльністю страхових компаній. В умовах ризикогенного середовища, досить високої ймовірності виникнення загроз природного та техногенного характеру загострюються проблеми щодо необхідності наукового обґрунтування процесу взаємодії стейкхолдерів страхового ринку. Аргументовано, що страхування у світовому економічному просторі є незамінним фінансово-економічним інструментом нейтралізації найрізноманітніших ризиків, особливо зважаючи на соціально-економічні, фінансові та епідеміологічні небезпеки сучасності. Визначено, що одним із першочергових завдань менеджменту страхової компанії є управління її бізнес-процесами, спрямованими на формування мо-делі клієнтоорієнтованості відносно потенційних клієнтів. Наголошено на необхідності використання різноманітних інноваційних стратегій управління для досягнення середньострокових та довгострокових цілей компанії на страховому ринку. Зокрема, аргу-ментовано доцільність здійснення диверсифікації та використання альтернативних стратегій ціноутворення на страхові послуги з довгострокових та загальних видів страхування. Сформульовано пропозиції, спрямовані на цифровізацію страхового ринку та широке застосування FinTech-технологій у сфері страхових послуг: автоматизований андерайтинг, ІОТ-технології; блокчейн у страхуванні. Узагальнюючи результати проведеного дослідження, конкретизовано авторські підходи до подальшого функціонування страхових відносин у суспільстві.Ключові слова: ризики, страхова компанія, страхувальники, страховий захист, стейкхолдери страхового ринку, управління.

scholarly journals Stimulating and limiting factors for the growth of investment potential of Ukrainian insurance companies

2020 ◽  
Vol 17 (1) ◽  
pp. 85-96
Author(s):  
Svitlana Cherkasova ◽  
Tetyana Kalaitan ◽  
Nadiia Rushchyshyn ◽  
Igor Yaremko ◽  
Nataliia Yaroshevych
Keyword(s):  
Insurance Industry ◽  
State Regulation ◽  
Limiting Factors ◽  
Insurance Companies ◽  
Inhibitory Influence ◽  
Investment Strategies ◽  
Financial Instruments ◽  
Investment Activity ◽  
Main Factors ◽  
Low Efficiency

The fact that the accumulated investment potential (IP) of insurance companies (IC) does not have a significant impact on the processes of economic growth in Ukrainian practice actualizes the task of researching the practice of investing in the activities of domestic insurers. The purpose of the study is to find out, classify and highlight the main factors that influence the formation of the Ukrainian IC’ IP and give recommendations for overcoming a number of related difficulties. According to the results of investigation of the Ukrainian insurance industry development trends in 2011–2018, it was concluded that rates of their IP accumulation are insufficient. There is a decrease in the aggregate value of insurers’ investment assets and a reduction in the composition of investment attractive financial instruments. Low efficiency and simplification of investment strategies of IC are noted. The factors that exert a stimulating and inhibitory influence on the investment processes in the Ukrainian insurance market were identified. Ways and tools were proposed to strengthen the effect of incentive factors and eliminate or minimize the effect of the considered restrictive factors that can be used in the practice of state regulation of the insurance industry of the country. Considering the examined factors should allow the state regulators making more effective decisions to improve the investment activity of insurers and enhance its importance in the development of the national economy.

scholarly journals Using Genetic Algorithms to Develop a Dynamic Guaranteed Option Hedge System

2019 ◽  
Vol 11 (15) ◽  
pp. 4100 ◽  
Author(s):  
Hyounggun Song ◽  
Sung Kwon Han ◽  
Seung Hwan Jeong ◽  
Hee Soo Lee ◽  
Kyong Joo Oh
Keyword(s):  
Genetic Algorithm ◽  
Financial Markets ◽  
Capital Market ◽  
Linear Problem ◽  
Economic Benefits ◽  
Insurance Companies ◽  
Investment Efficiency ◽  
Investment Strategies ◽  
Market Risks ◽  
Total Profit

In this research, we develop a guaranteed option hedge system to protect against capital market risks using a genetic algorithm (GA). We test the hedge effectiveness of our guaranteed option hedge strategy by comparing the performance of our system with those of other strategies. A genetic algorithm heuristic trading method for the optimization of a non-linear problem is applied to each system to improve the hedge effectiveness. The GA dynamic hedge system developed in this research is found to improve hedge effectiveness by reducing the option value volatility and increasing the total profit. Insurance companies are able to make more efficient investment strategies by using our guaranteed option hedge system. It contributes to the investment efficiency of the insurance companies and helps to achieve efficiency for financial markets. In addition, it helps to achieve sustained economic benefits to policyholders. In this sense, the system developed in this paper plays a role in sustaining economic growth.

EFFICIENT DYNAMIC HEDGING FOR LARGE VARIABLE ANNUITY PORTFOLIOS WITH MULTIPLE UNDERLYING ASSETS

2020 ◽  
Vol 50 (3) ◽  
pp. 913-957
Author(s):  
X. Sheldon Lin ◽  
Shuai Yang
Keyword(s):  
Interest Rates ◽  
Computing Time ◽  
Insurance Companies ◽  
Insurance Company ◽  
Simulation Approach ◽  
Stochastic Interest Rates ◽  
Dynamic Hedging ◽  
Market Risks ◽  
Stochastic Interest ◽  
Hedging Portfolio

AbstractA variable annuity (VA) is an equity-linked annuity that provides investment guarantees to its policyholder and its contributions are normally invested in multiple underlying assets (e.g., mutual funds), which exposes VA liability to significant market risks. Hedging the market risks is therefore crucial in risk managing a VA portfolio as the VA guarantees are long-dated liabilities that may span decades. In order to hedge the VA liability, the issuing insurance company would need to construct a hedging portfolio consisting of the underlying assets whose positions are often determined by the liability Greeks such as partial dollar Deltas. Usually, these quantities are calculated via nested simulation approach. For insurance companies that manage large VA portfolios (e.g., 100k+ policies), calculating those quantities is extremely time-consuming or even prohibitive due to the complexity of the guarantee payoffs and the stochastic-on-stochastic nature of the nested simulation algorithm. In this paper, we extend the surrogate model-assisted nest simulation approach in Lin and Yang [(2020) Insurance: Mathematics and Economics, 91, 85–103] to efficiently calculate the total VA liability and the partial dollar Deltas for large VA portfolios with multiple underlying assets. In our proposed algorithm, the nested simulation is run using small sets of selected representative policies and representative outer loops. As a result, the computing time is substantially reduced. The computational advantage of the proposed algorithm and the importance of dynamic hedging are further illustrated through a profit and loss (P&L) analysis for a large synthetic VA portfolio. Moreover, the robustness of the performance of the proposed algorithm is tested with multiple simulation runs. Numerical results show that the proposed algorithm is able to accurately approximate different quantities of interest and the performance is robust with respect to different sets of parameter inputs. Finally, we show how our approach could be extended to potentially incorporate stochastic interest rates and estimate other Greeks such as Rho.

Abstract: Alternative Investment Strategies for the Issuers of Equity-Linked Life Insurance Policies with an Asset Value Guarantee

1977 ◽  
Vol 12 (4) ◽  
pp. 651-652 ◽  
Author(s):  
Michael J. Brennan ◽  
Eduardo S. Schwartz
Keyword(s):  
Option Pricing ◽  
Life Insurance ◽  
Mutual Fund ◽  
Investment Strategy ◽  
Insurance Companies ◽  
Recent Theory ◽  
Investment Strategies ◽  
Insurance Company ◽  
Insurance Policy ◽  
Asset Value

An equity-linked life insurance policy with an asset value guarantee (ELPAVG) is an insurance policy whose benefit payable on death or at maturity consists of the greater of some guaranteed amount and the value of a reference portfolio which is defined by the deemed investment of a predetermined component of the policy premium in a portfolio of common stocks or mutual fund–the reference fund. In an earlier paper we demonstrated that the benefit payable under an ELPAVG could be decomposed into the known guaranteed amount and an immediately exercisable call option to purchase the reference portfolio for an exercise price equal to the guaranteed amount. The principles of the option pricing model were then employed to derive the equilibrium premium for both a single premium ELPAVG contract and a periodic premium contract. It was further noted that the hedging arguments, which are the core of most of the recent theory of option pricing, could be employed to derive an investment strategy for the insurance company which would eliminate the risks associated with the sale of ELPAVGs: this is an important result, for ELPAVGs may pose a significant threat to the solvency of insurance companies since the risks of loss under different contracts are not independent, but are commonly related to the overall performance of the reference fund. Actuaries have responded to this threat by attempting to determine a level of reserves sufficient to reduce the probability of ruin to an acceptable level. On the other hand, adoption of the riskless investment strategy in theory eliminates the need to hold any reserves except against mortality risk.

scholarly journals Dynamic surplus optimization with performance- and index-linked liabilities

2021 ◽  
Author(s):  
Sascha Desmettre ◽  
Markus Wahl ◽  
Rudi Zagst
Keyword(s):  
Optimal Investment ◽  
Investment Strategy ◽  
Insurance Companies ◽  
Investment Strategies ◽  
Insurance Company ◽  
Expected Return ◽  
Close Link ◽  
Closed Form Solutions ◽  
Risky Investment ◽  
The Impact

AbstractThe increasing importance of liability-driven investment strategies and the shift towards retirement products with lower guarantees and more performance participation provide challenges for the development of portfolio optimization frameworks which cover these aspects. To this end, we establish a general and flexible terminal surplus optimization framework in continuous time, allowing for dynamic investment strategies and stochastic liabilities, which can be linked to the performance of an index or the asset portfolio of the insurance company. Besides optimality results in a fairly general surplus optimization setting, we obtain closed-form solutions for the optimal investment strategy for various specific liability models, which include the cases of index-linked and performance-linked liabilities and liabilities which are completely or only partially hedgeable. We compare the results in numerical examples and study the impact of the performance participation, unhedgeable risk components, different ways of modeling the liabilities and the relative risk aversion parameter. We find that performance- or index-linked liabilities, which provide a close link between the wealth of the insurance company and its liabilities, allow for a higher allocation in the risky investment. On the other hand, unhedgeable risks reduce the allocation in the risky investment. We conclude that, aiming at a high expected return for the policy holder, insurance companies should try to connect the performance of insurance products closely to the wealth and minimize unhedgeable risks.

scholarly journals Financial sustainability management of the insurance company: case of Ukraine

2018 ◽  
Vol 15 (4) ◽  
pp. 219-228 ◽  
Author(s):  
Ruslana Pikus ◽  
Nataliia Prykaziuk ◽  
Mariia Balytska
Keyword(s):  
Negative Impact ◽  
Insurance Companies ◽  
Financial Sustainability ◽  
Investment Risk ◽  
Insurance Company ◽  
Qualitative And Quantitative ◽  
Strategic Market ◽  
The Impact ◽  
Risk Investment ◽  
Further Development

In the current conditions of the Ukrainian economy, which is characterized by crisis phenomena and frequent changes in legislation, the insurance organizations are facing a number of difficulties in maintaining their financial sustainability. Moreover, these processes take place under the increased requirements for solvency of insurers. However, a significant part of domestic insurance companies is financially unstable, which is conditioned not only by the lack of funds, but also by the low level of management. This situation hinders the further development of the insurance market in Ukraine and has a negative impact on all areas of the domestic financial system and prevents it from successful integration into the European financial field. In order to address this problem, it is necessary to distinguish the key groups of risks that affect the financial sustainability of insurance organizations, among which there are the following: insurance, strategic, market risk, risk of inefficient capital structure, risk of limiting the insurance company’s liquidity, tax risk, investment risk, operational risk, the risk of ineffective organizational structure of the enterprise, and information risk. It should be noted that under conditions of changing environment, the impact of these risks only increases, and therefore the task of minimizing the impact of these risks on the activities of insurance companies is highly important. Accordingly, the authors of the article proposed a four-stage strategy to manage the financial sustainability of the insurance company, the purpose of which is to identify the risks of limiting the insurer’s financial sustainability, their qualitative and quantitative assessment, as well as the development and implementation of appropriate measures to minimize and eliminate unacceptable consequences.

EUROPEAN VECTOR OF DEVELOPMENT OF THE INSURANCE COMPANIES INVESTMENT ACTIVITY

2017 ◽  
pp. 84-87
Author(s):  
Viktor Smoliak
Keyword(s):  
Associate Professor ◽  
Insurance Market ◽  
Insurance Companies ◽  
Market Development ◽  
Insurance Company ◽  
Investment Activity ◽  
European Insurance ◽  
Simon Kuznets

UDC 368   Viktor Smoliak, PhD, Associate Professor. Kharkiv National Simon Kuznets University of Economics. European vector of development of the insurance companies investment activity. The article investigates Ukrainian insurance market problems and peculiarities of the insurance companies investment activity. The author defined the differences between Ukrainian insurance companies investment activity and European insurance companies investment activity. There are justified the main directions of development of Ukrainian insurance market in the article.   Keywords: insurance, insurance company, investment activity, insurance market, development of insurance.

scholarly journals Assessing Guaranteed Minimum Income Benefits and Rationality of Exercising Reset Options in Variable Annuities

2019 ◽  
Vol 8 (5) ◽  
pp. 13
Author(s):  
Riley Jones ◽  
Adriana Ocejo
Keyword(s):  
Interest Rates ◽  
Critical Value ◽  
Insurance Companies ◽  
Insurance Company ◽  
Future Projections ◽  
Minimum Income ◽  
Market Risks ◽  
Reset Option ◽  
Guaranteed Minimum Income ◽  
Payment Rate

A variable annuity is an equity-linked financial product typically offered by insurance companies. The policyholder makes an upfront payment to the insurance company and, in return, the insurer is required to make a series of payments starting at an agreed upon date. For a higher premium, many insurance companies offer additional guarantees or options which protect policyholders from various market risks. This research is centered around two of these options: the guaranteed minimum income benefit (GMIB) and the reset option. The sensitivity of various parameters on the value of the GMIB is explored, particularly the guaranteed payment rate set by the insurer. Additionally, a critical value for future interest rates is calculated to determine the rationality of exercising the reset option. This will be able to provide insight to both the policyholder and policy writer on how their future projections on the performance of the stock market and interest rates should guide their respective actions of exercising and pricing variable annuity options. This can help provide details into the value of adding options to a variable annuity for companies that are looking to make variable annuity policies more attractive in a competitive market.

scholarly journals MODELLING OF INSURANCE COVERAGE CONTINUITY PROVIDING IN MINING INDUSTRY IN CRISIS

2021 ◽  
Vol 2 (37) ◽  
pp. 287-297
Author(s):  
A. Cherep ◽  
O. Cherep ◽  
I. Kisilyova ◽  
Yu. Shvets
Keyword(s):  
Mathematical Model ◽  
Negative Impact ◽  
Insurance Premium ◽  
Insurance Companies ◽  
Insurance Fund ◽  
Insurance Company ◽  
Investment Activity ◽  
Dynamic Mathematical Model ◽  
Bankruptcy Probability ◽  
Probability Modelling

BANKRUPTCY PROBABILITY MODELLING OF INSURANCE COMPANIES IN CRISIS Abstract. To develop scientific and methodological foundations, for creating an dynamic mathematical model of insurance company solvency (bankruptcy probability) considering interest rate and inflation ratio. The study used the general scientific and special methods such as: the method of critical analysis, scientific abstraction and generalization of scientific expertise of recent theoretical studies, system-integrated approach, method of dynamic mathematical modeling. Elaboration of dynamic mathematical model of bankruptcy probability modelling considering inflation (as inflation has negative impact on all aspects of insurance business including insurance reserves) and rate of interest. The peculiarities of insurance companies investment activity have been defined. The estimation of insurance premium that ensures abequate insurance fund value formation, i.e. insurance company solvency formation has been performed. Insurance tariff and supplement value correspondent to defined probability of insurance company bankruptcy have been defined. Methodological approaches of insurance companies solvency (bankruptcy probability) modelling were further developed. The dynamic mathematical model of bankruptcy probability considering inflation and rate of interest has been proposed. Theoretical study was developed to the level of specific techniques and suggestions for improvement of the estimation and prognozing of insurance companies solvency and could be used in strategic, current and operational planning. A comprehensive methodology of supplement estimation allows to respond to the changing market situation by changing the values of insurance tariffs. Keywords: insurance organization, dynamic model, probability of bankruptcy, inflation, rate of interest. JEL Сlassification C15, G22, L6, H12 Formulas: 36; fig.: 0; tabl.: 0; bibl.: 12.

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