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Multiple-prior valuation of cash flows subject to capital requirements

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  • Engsner, Hampus
  • Lindskog, Filip
  • Thøgersen, Julie

Abstract

We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. The value assigned to an insurance liability is the consequence of (1) considering a hypothetical transfer of an insurance company's liabilities, and financial assets intended to hedge these liabilities, to an empty corporate entity, and (2) considering the circumstances under which a capital provider would want to achieve and maintain ownership of this corporate entity given limited liability for the owner and that capital requirements have to be met at any time for continued ownership.

Suggested Citation

  • Engsner, Hampus & Lindskog, Filip & Thøgersen, Julie, 2023. "Multiple-prior valuation of cash flows subject to capital requirements," Insurance: Mathematics and Economics, Elsevier, vol. 111(C), pages 41-56.
    • Handle: RePEc:eee:insuma:v:111:y:2023:i:c:p:41-56
    DOI: 10.1016/j.insmatheco.2023.02.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Market-consistent valuation; Insurance valuation; Capital requirements; Limited liability; Optimal stopping;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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