Capital implications of infrastructure assets for insurers under SAM

Infrastructure as an asset class is hardly a new idea. Retirement funds are attracted to the promise of higher turns, long-dated cash flows, and consistency with increasingly important ESG factors.  Insurers, unlikely retirement funds, have to hold risk-based capital against the risks inherent in their investments. This makes it more difficult to underestimate the risks […]

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 on mis-estimating […]

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 […]