Market-Valuation Methods in Life and Pension Insurance

Describes developments in life insurance mathematics, addressing specific aspects of market-based valuation.

Thomas Møller (Author), Mogens Steffensen (Author)

9780521868778, Cambridge University Press

Hardback, published 18 January 2007

294 pages, 19 b/w illus. 6 tables
22.9 x 15.7 x 2 cm, 0.546 kg

'The book under review is the first available reference to offer a comprehensive account for market-valuation methods in life and pension insurance, answering the insurance industry's demand in the wake of the European Union Solvency II project. … The book is well written, well organized and a very rich source of useful information for practitioners of the actuarial profession and financial asset managers who seek a practical yet sound guide to life and pension insurance accounting and product development. … researchers in the fields of actuarial sciences and financial economics may find it informative and inspiring to further research in the field of asset and liability modeling.' Scandinavian Actuarial Journal

In classical life insurance mathematics the obligations of the insurance company towards the policy holders were calculated on artificial conservative assumptions on mortality and interest rates. However, this approach is being superseded by developments in international accounting and solvency standards coupled with other advances enabling a market-based valuation of risk, i.e., its price if traded in a free market. The book describes these approaches, and is the first to explain them in conjunction with more traditional methods. The various chapters address specific aspects of market-based valuation. The exposition integrates methods and results from financial and insurance mathematics, and is based on the entries in a life insurance company's market accounting scheme. The book will be of great interest and use to students and practitioners who need an introduction to this area, and who seek a practical yet sound guide to life insurance accounting and product development.

Preface
1. Introduction and life insurance practice
2. Technical reserves and market value
3. Interest rate theory in insurance
4. Bonus, binomial and Black-Scholes
5. Integrated actuarial and financial valuation
6. Surplus-linked life insurance
7. Interest rate derivatives in insurance
Appendix A.

Subject Areas: Applied mathematics [PBW], Insurance & actuarial studies [KFFN]