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Reinsurance and securitisation of life insurance risk: The impact of regulatory constraints

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  • Barrieu, Pauline
  • Loubergé, Henri

Abstract

Large systematic risks, such as those arising from natural catastrophes, climatic changes and uncertain trends in longevity increases, have risen in prominence at a societal level and, more particularly, have become a highly relevant issue for the insurance industry. Against this background, the combination of reinsurance and capital market solutions (insurance-linked securities) has received an increasing interest. In this paper, we develop a general model of optimal risk-sharing among three representative agents—an insurer, a reinsurer and a financial investor, making a distinction between systematic and idiosyncratic risks. We focus on the impact of regulation on risk transfer, by differentiating reinsurance and securitisation in terms of their impact on reserve requirements. Our results show that different regulatory prescriptions will lead to quite different results in terms of global risk-sharing.

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  • Barrieu, Pauline & Loubergé, Henri, 2013. "Reinsurance and securitisation of life insurance risk: The impact of regulatory constraints," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 135-144.
    • Handle: RePEc:eee:insuma:v:52:y:2013:i:2:p:135-144
    DOI: 10.1016/j.insmatheco.2012.11.008
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    References listed on IDEAS

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    1. J. David Cummins & Mary A. Weiss, 2009. "Convergence of Insurance and Financial Markets: Hybrid and Securitized Risk‐Transfer Solutions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 493-545, September.
    2. David Blake & Andrew Cairns & Kevin Dowd & Richard MacMinn, 2006. "Longevity Bonds: Financial Engineering, Valuation, and Hedging," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 647-672, December.
    3. Martin Eling & Hato Schmeiser & Joan T. Schmit, 2007. "The Solvency II Process: Overview and Critical Analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 10(1), pages 69-85, March.
    4. Scott E. Harrington, 2009. "The Financial Crisis, Systemic Risk, and the Future of Insurance Regulation," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(4), pages 785-819, December.
    5. Alex Cowley & J. David Cummins, 2005. "Securitization of Life Insurance Assets and Liabilities," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(2), pages 193-226, June.
    6. Barrieu, Pauline & El Karoui, Nicole, 2005. "Inf-convolution of risk measures and optimal risk transfer," LSE Research Online Documents on Economics 2829, London School of Economics and Political Science, LSE Library.
    7. J. David Cummins, 2008. "CAT Bonds and Other Risk‐Linked Securities: State of the Market and Recent Developments," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 11(1), pages 23-47, March.
    8. Pauline Barrieu & Nicole El Karoui, 2005. "Inf-convolution of risk measures and optimal risk transfer," Finance and Stochastics, Springer, vol. 9(2), pages 269-298, April.
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    Cited by:

    1. J. David Cummins & Georges Dionne & Robert Gagné & Abdelhakim Nouira, 2021. "The costs and benefits of reinsurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(2), pages 177-199, April.
    2. Cheung, Ka Chun & Phillip Yam, Sheung Chi & Yuen, Fei Lung & Zhang, Yiying, 2020. "Concave distortion risk minimizing reinsurance design under adverse selection," Insurance: Mathematics and Economics, Elsevier, vol. 91(C), pages 155-165.
    3. Susanna Levantesi & Massimiliano Menzietti, 2017. "Maximum Market Price of Longevity Risk under Solvency Regimes: The Case of Solvency II," Risks, MDPI, vol. 5(2), pages 1-21, May.

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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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