Unbelievable Risk Discounts Rates

Setting discount rates is a crucial and subjective exercise. This is true for life insurance embedded values too. Many researchers are comfortable with a range for Equity Risk Premiums of between 3% and 5%. Many corporate finance practitioners use a range from 5% to 8% or even higher. My nearly eight year old blog post […]

The future is not as old as we thought

Expectations of future UK life expectancy have declined for several years now. This is not to say that current life expectancy has decreased, but rather than estimates of future mortality improvements are being lowered, pushing down future estimated life expectancy. One report indicates this change may roll back a year of expected mortality improvements. So […]

Just what are ancillary own funds?

Reading the Financial Soundness Standards for Insurers (FSIs) is an exercise that can only end in madness. I’m sufficiently familiar with them now that I mostly refer back to them for particularly tricky or thorny issues. Without fail, the words fail to clearly communicate exactly what was intended. Take ancillary capital as an example. To […]

Downwards counterfactual analysis

Stress and scenario testing are important risk assessment tools.  They also provide useful ways to prepare in advance for adverse scenarios so that management doesn’t have to create everything from first principles when something similar occurs. But trying to imagine scenarios, particularly very severe scenarios, isn’t straightforward. We don’t have many examples of very extreme […]

Move over cholera, here’s the Black Death

The Black Death, caused by the bacterium Yersinia pestis, wiped out 30 to 50 percent of Europe’s population between 1347 and 1351 Now, South Africa has been placed on high alert for a potential plague infection. Mortality rates are estimated anywhere between 30% and 100% without treatment. Many estimates are towards the top end of this […]