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Market Value Of Insurance Liabilities

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  • Luke Girard

Abstract

With Statement of Financial Accounting Standards 115 (FASB 1993), insurers are now in the awkward situation that almost half of the balance sheet is marked to market. This has created a material inconsistency with the way liabilities are reported, thus diminishing the usefulness of financial reporting to shareholders and potential new investors. Discussion has emerged in the industry about the process of market valuing liabilities. The American Academy of Actuaries has formed a “Fair Valuation of Liabilities” task force to compare and review various alternative methodologies. During 1995 the Society of Actuaries and New York University jointly sponsored a conference on “Fair Value of Insurance Liabilities.” Motivated by the conference, this paper attempts to bridge the gap between option pricing and actuarial appraisal methodologies. The author suggests we refocus attention toward the assumption-setting process, which is the key driver of a fair valuation. In this regard, this paper attempts to advance practice and methodology with respect to life insurance company valuation.

Suggested Citation

  • Luke Girard, 2000. "Market Value Of Insurance Liabilities," North American Actuarial Journal, Taylor & Francis Journals, vol. 4(1), pages 31-49.
    • Handle: RePEc:taf:uaajxx:v:4:y:2000:i:1:p:31-49
    DOI: 10.1080/10920277.2000.10595871
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    Cited by:

    1. Eckhard Platen, 2009. "Real World Pricing of Long Term Contracts," Research Paper Series 262, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Kevin Fergusson & Eckhard Platen, 2017. "Less-Expensive Valuation of Long Term Annuities Linked to Mortality, Cash and Equity," Papers 1711.02808, arXiv.org.
    3. Rogers, L. C. G. & Stummer, Wolfgang, 2000. "Consistent fitting of one-factor models to interest rate data," Insurance: Mathematics and Economics, Elsevier, vol. 27(1), pages 45-63, August.
    4. Kevin Fergusson & Eckhard Platen, 2013. "Real World Pricing of Long Term Cash-Linked Annuities and Equity-Linked Annuities with Cash-Linked Guarantees," Research Paper Series 338, Quantitative Finance Research Centre, University of Technology, Sydney.
    5. Cocozza, Rosa & Di Lorenzo, Emilia, 2007. "A Dynamic Solvency Approach for Life Insurance," MPRA Paper 28015, University Library of Munich, Germany.

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