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Financing the embedded value of life insurance portfolios

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  • Hölscher, Luise
  • Harding, Perham
  • Becker, Gernot M.
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    Abstract

    In May 2004 the CFO Forum harmonized the various efforts of reporting the embedded valueof life insurance companies by issuing the European Embedded Value (EEV) Principles.In this working paper a methodology is proposed to derive a maximum lending amountfrom EEV figures without much additional data requirements from the originating insurer. The approach chosen is similar to that of other financing areas, e.g. real estate finance, where first a prudent best estimate valuation is done and later risk deductions are performed in the form of applying loan to value ratios, e.g. 60-80 % of the prudent amount. Here, this prudent value is called bankable embedded value and the loan to value analysis presented leads to the maximum lending amount. The deductions proposed to arrive at a maximum lending amount are based on parameter adjustments and risk allowances for unexpected risks. There is an analogy with insurers for determining their own capital needs. The methodology proposed is based on the stress test approach which increasingly gains popularity with insurance supervisors in Europe. --

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    Bibliographic Info

    Paper provided by Frankfurt School of Finance and Management in its series Frankfurt School - Working Paper Series with number 64.

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    Date of creation: 2005
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    Handle: RePEc:zbw:fsfmwp:64

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    Related research

    Keywords: European embedded value; embedded value; life insurance policies; maximum lending amount; required capital; risk analysis; risk discount rate; value reporting and analysis; value sensitivity analysis;

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    Cited by:
    1. Almer, Thomas & Heidorn, Thomas & Schmaltz, Christian, 2008. "The dynamics of short- and long-term CDS-spreads of banks," Frankfurt School - Working Paper Series 95, Frankfurt School of Finance and Management.
    2. Polleit, Thorsten & Gerdesmeier, Dieter, 2005. "Measures of excess liquidity," Frankfurt School - Working Paper Series 65, Frankfurt School of Finance and Management.
    3. Grau, Corinna & Moormann, Jürgen, 2013. "Exploring the interrelation between process management and organizational culture: A critical review," Frankfurt School - Working Paper Series 200, Frankfurt School of Finance and Management.
    4. Kostka, Genia & Hobbs, William, 2010. "Energy efficiency in China: The local bundling of interests and policies," Frankfurt School - Working Paper Series 151, Frankfurt School of Finance and Management.

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