The Geneva Papers: 40 Years at the Cutting Edge of Research in Insurance Economics

270 Pages·0.777 MB·English

by  Christophe Courbage (eds.)

The Geneva Papers
40 Years at the Cutting Edge of
Research in Insurance Economics
Edited by
Christophe Courbage
The Geneva Papers
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The Geneva Papers
40 Years at the Cutting Edge of Research
in Insurance Economics
Edited by
Christophe Courbage
The Geneva Association, Switzerland
Geneva School of Business Administration – University of Applied Sciences
Western Switzerland
Selection and editorial matter © Christophe Courbage 2016
Chapters © The International Association for the Study of Insurance
Economics 2016
Chapters originally published in The Geneva Papers on Risk and Insurance –
Issues and Practice by Palgrave Macmillan (various years)
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First published 2016 by
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ISBN 978-1-349-57556-5 ISBN 978-1-137-57479-4 (eBook)
DOI 10.1007/978-1-137-57479-4
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Contents
List of Figures and Tables vi
1 Introduction: The Geneva Papers, 40 Years at the
Cutting Edge of Research in Insurance Economics 1
Christophe Courbage
2 Lemons or Cherries? Asymmetric Information in
the German Private Long-term Care Insurance Market 5
Mark J. Browne and Tian Zhou-Richter
3 Systemic Risk in the Insurance Sector: A Review of
Current Assessment Approaches 34
Andreas A. Jobst
4 Insurers’ Investment in Infrastructure:
Overview and Treatment under Solvency II 74
Nadine Gatzert and Thomas Kosub
5 Unisex Insurance Pricing: Consumers’ Perception and
Market Implications 102
Hato Schmeiser, Tina Störmer and Joël Wagner
6 Solvency Assessment for Insurance Groups in the
United States and Europe—A Comparison of Regulatory
Frameworks 139
Caroline Siegel
7 What Role for “Long-term Insurance” in Adaptation?
An Analysis of the Prospects for and Pricing of Multi-year
Insurance Contracts 169
Trevor Maynard and Nicola Ranger
8 Insurability in Microinsurance Markets: An Analysis of
Problems and Potential Solutions 196
Christian Biener and Martin Eling
9 How Much Capital Does a Reinsurance Need? 235
Jean-Luc Besson, Michel M. Dacorogna, Paolo de Martin,
Michael Kastenholz and Michael Moller
Index 254
v
List of Figures and Tables
Figures
2.1 Unisex 14-year cumulative care incidence based on 1992
German incidence table for care 14
3.1 Macro-financial linkages of insurance activities 44
3.2 Potential overlaps between global and domestic
SIFI methodologies 62
4.1 Exemplary derivation of the SCR for market risk
(aggregated based on spread and interest rate risk
submodules using the square-root formula) for a bond
with different ratings and maturities under the Solvency II
standard model (asset side only) 91
7.1 Annual premium (top) and capital requirement (bottom) as
a function of the length of the policy term for a multi-year
insurance contract 175
7.2 Annual premium (top) and capital requirement (bottom)
as a function of the policy duration under conditions of
continuous solvency (solid) and solvency at the end of the
policy term (dashed) for constant α 176
7.3 Stochastic simulation to illustrate the solvency process.
The simulation represents the ratio of claims to the
accumulated premium plus capital (y-axis) vs. time in years
(x-axis). The grey lines are individual simulations, the
dashed line shows the expected values and the solid lines
bound the 5th and 95th percentiles. Simulations with a
y-value less than 1 can be interpreted as insolvent 177
7.A1 The simulated relationship between premium and length
of policy term under different representations of the claims
distribution 194
9.1 The two dimensions of capital of an insurance company:
available vs. required capital 239
9.2 The internal capital requirement satisfies all stakeholders:
internal RBC, Required Capital, Buffer and Target Capital
(in € billons, based on figures for 2008) 240
vi
List of Figures and Tables vii
9.3 SCOR actively manages its capital to optimise return Buffer
Capital limits probability of a capital increase (in € billions) 241
9.4 The Buffer Capital Policy is consistent with the return
target Risk/Return trade-off for different recapitalisation
probabilities 242
9.5 The Buffer Capital absorbs the single worst-case scenarios
Buffer Capital checked against single worst-case scenarios
(examples) (in € millions, net of retro) 243
9.6 Risk loading for various CAT Programmes. (a) Using the
standard deviation loading makes all these programmes
lie on a straight line since they present very similar risk
characteristics. Risk Rate on line: RROL = Expected Loss/
Granted Limit. (b) Diversification on risk accumulation are
favoured respectively penalised in the price. As a result,
the pricing mechanism implicitly optimises the portfolio 244
Tables
2.1 Summary statistics of respondents’ need for care of
uninsured group, insured group and total sample
(3,749 respondents) 18
2.2 Summary statistics of insurers’ risk classification criteria
(3,749 respondents) 19
2.3 Summary statistics of potential sources of adverse and
advantageous selection (3,749 respondents) 20
2.4 Predictive power of insurers’ risk classification criteria for
ex post care need and their influence on insurance
coverage 21
2.5 Sources of adverse selection and their impact on the
correlation between LTC insurance ownership and
actual care need 23
2.6 Sources of advantageous selection and their impact on
the correlation between LTC insurance ownership and
actual care need 24
2.7 Changes in correlation between LTC insurance and actual
care need, estimated through five bivariate probit models 28
3.1 General systemic risk measurement approaches 38
viii List of Figures and Tables
3.2 Quantitative indicators of systemically important activity
in the insurance sector—Current industry proposal (Geneva
Association) and adaptation to the supervisory framework
in Bermuda 46
3.3 Bermuda Class 4 and 3B (re)insurance Firms—Liquidity
conditions, 2007–2011 52
3.4 Bermuda Class 4 and 3B (re)insurance firms—Level and
concentration of liquidity risk, 2007–2011 54
3.5 Selected assessment methodologies for the identification
of Systemically Important Financial Institutions (SIFIs)—
insurance and banking 56
4.1 Sectors available as material infrastructure investments 77
4.2 Overview and classification of infrastructure investments
following Solvency II (EIOPA) and selected empirical
results regarding specific characteristics of infrastructure
investments 78
4.3 Infrastructure investments under the Solvency II
standard model 93
5.1 Descriptive statistics of survey results: Acceptance of
differentiation criteria 113
5.2 Descriptive statistics of survey results: Acceptance of price
differentiation 121
6.1 Summary of the group model comparison 162
7.1 Long-term guarantees implied by three life assurance
products 182
7.A1 Definition of stochastic variables in the example 194
8.1 Insurability criteria and related requirements according
to Berliner 199
8.2 Distribution of publications and relevance of
insurability criteria 201
8.3 Strategies for insurability adaption 211
8.A1 Insurability criteria in lines of business 229
1
Introduction: The Geneva Papers,
40 Years at the Cutting Edge of
Research in Insurance Economics
Christophe Courbage
The Geneva Association, Switzerland
Geneva School of Business Administration – University of Applied Sciences
Western Switzerland
The Geneva Papers on Risk and Insurance is celebrating its fortieth b irthday
this year. In January 1976, Raymond Barre, the first president of The
Geneva Association, and Orio Giarini, its first Secretary General, founded
The Geneva Papers on Risk and Insurance with the main goal of supporting
and encouraging research in the economics of risk and insurance.
At that time, research in the field of insurance was still embryonic.
Insurance was regarded as a peripheral social activity and its economic
value received very little attention. With the beginning of steady eco-
nomic growth, the function of insurance gradually emerged as a key
contributor to economic development. By integrating uncertainty into
economic theory and benefiting from the progress of both financial
economics and decision theory, research developed further in the field
of insurance economics and risk management and is now prolific. We
dare to believe that The Geneva Papers on Risk and Insurance contrib-
uted to this evolution and that its impact on research in insurance has
largely exceeded what its two founding members could have expected.1
Looking back at past issues published in The Geneva Papers on Risk and
Insurance, it is really astonishing to witness the great number of scholars
in the field who contributed to the journal. They include the pioneers of
the discipline as well as Nobel Prizes and highly recognised and reputed
scholars, and also high-level experts and executives from the insurance
industry, making the journal a unique forum to stimulate constructive
dialogue between the industry and its economic and social partners.
One activity to celebrate this fortieth anniversary is to issue a special
anniversary collection of The Geneva Papers on Risk and Insurance gather-
ing articles published in the last years that echo the diversity of themes
1