Fair valuation of insurance liabilities

Merging actuarial judgement and market-consistency

Jan Dhaene, Ben Stassen, Karim Barigou, Daniel Hemant Linders, Ze Chen

Research output: Contribution to journalArticle

Abstract

In this paper, we investigate the fair valuation of liabilities related to an insurance policy or portfolio in a single period framework. We define a fair valuation as a valuation which is both market-consistent (mark-to-market for any hedgeable part of a claim) and actuarial (mark-to-model for any claim that is independent of financial market evolutions). We introduce the class of hedge-based valuations, where in a first step of the valuation process, a ‘best hedge’ for the liability is set up, based on the traded assets in the market, while in a second step, the remaining part of the claim is valuated via an actuarial valuation. We also introduce the class of two-step valuations, the elements of which are very closely related to the two-step valuations which were introduced in Pelsser and Stadje (2014). We show that the classes of fair, hedge-based and two-step valuations are identical.

Original languageEnglish (US)
Pages (from-to)14-27
Number of pages14
JournalInsurance: Mathematics and Economics
Volume76
DOIs
StatePublished - Sep 1 2017
Externally publishedYes

Fingerprint

Insurance
Valuation
Merging
Market
Judgment
Liability insurance
Financial Markets

Keywords

  • Actuarial valuation
  • Fair valuation of insurance liabilities
  • Market-consistent valuation
  • Mean–variance hedging
  • Solvency II

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

Fair valuation of insurance liabilities : Merging actuarial judgement and market-consistency. / Dhaene, Jan; Stassen, Ben; Barigou, Karim; Linders, Daniel Hemant; Chen, Ze.

In: Insurance: Mathematics and Economics, Vol. 76, 01.09.2017, p. 14-27.

Research output: Contribution to journalArticle

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