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Solvency Capital, Pricing and Capitalisation Strategies of Life Annuity Providers

Financial independence

Maathumai Nirmalendran, Michael Sherris and Katja Hanewald

This paper provides a detailed quantitative assessment of the impact of solvency capital requirements on product pricing and shareholder value for a life insurer. A multi-period firm value maximization model for a life annuity provider, allowing for stochastic mortality and asset returns, imperfectly elastic product demand, as well as frictional costs, is used to derive optimal capital and pricing strategies for a range of solvency levels reflecting differences in regulatory regimes.


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