Market valuation in the framework of modern life insurance mathematics Cover Image

Tržišno vrednovanje u okviru moderne matematike životnih osiguranja
Market valuation in the framework of modern life insurance mathematics

Author(s): Maja Petrač
Subject(s): Business Economy / Management, Financial Markets
Published by: Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku
Keywords: market valuation; modern life insurance mathematics; principle of equivalence; Solvency II;

Summary/Abstract: In the traditional actuarial life insurance mathematics, liabilities to beneficiaries (technical reserves) are calculated based on conservative assumptions of mortality and interest rates. However, this approach was found to be incomplete since it does not contain the market component which has become essential due to the development of the financial market. Since about 80% of total liabilities of life insurance companies are made up of technical reserves, this issue has a major impact on the overall performance of insurance companies. The introduction of financial components into the actuarial valuation resulted in actuarial mathematics using more and more the elements of financial mathematics thus creating new, modern life insurance mathematics. Using a simple example, this paper compares the traditional and market approaches to valuation. For this purpose, one of the principles of modern life insurance mathematics, the principle of equivalence, was observed. The above market approach to valuation, together with operational risk management,forms the basis of Solvency II Directive, the new legislative and regulatory framework for insurance and reinsurance companies in the European Union.

  • Issue Year: 26/2013
  • Issue No: 2
  • Page Range: 611-619
  • Page Count: 10
  • Language: Croatian