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Hedging Interest Rate Risk in Life Insurance Using Interest Rate Derivatives

In: Derivatives Applications in Asset Management

Author

Listed:
  • Vincenzo Russo

    (Head of Group Life and Health Risk Capital Modeling at Generali Group)

Abstract

This chapter examines how life insurance companies hedge interest-rate risk using swaps as part of their Asset-Liability Management processes. It focuses on mitigating the duration mismatch between long-term liabilities and shorter-term assets by incorporating interest-rate derivatives into the asset portfolio. The illustration demonstrates how a receiver swap can be used to increase asset duration, reducing the duration gap and stabilizing present value of future profits or losses against interest-rate fluctuations. The case emphasizes the importance of effective duration as a metric and the role of optimization in aligning asset and liability sensitivities to market changes.

Suggested Citation

  • Vincenzo Russo, 2025. "Hedging Interest Rate Risk in Life Insurance Using Interest Rate Derivatives," Springer Books, in: Frank J. Fabozzi & Marielle de Jong (ed.), Derivatives Applications in Asset Management, chapter 0, pages 265-274, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-86354-7_16
    DOI: 10.1007/978-3-031-86354-7_16
    as

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