What does Business Rescue mean for credit risk, ratings and cross-default? Business Rescue precludes creditors from applying for liquidation of the business. This is the removal of an existing right of lenders: “a temporary moratorium on the rights of claimants against the company or in respect of property in its possession” From what I gather […]
Category archives: market risk
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 […]
Ghosts of bullets dodged
I have never owned Steinhoff shares. I was surprised then, when going through some old blog uploads (dealing with a separate copyright issue that I may touch on in another post) to find this share price graph of Steinhoff from 2007 I don’t remember looking at this, but the blog entry was actually about insider […]
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 […]
ERP update – delayed response to a blog reader
I reader asked why so many practitioners use high Equity Risk Premiums in their valuations and fairness opinions. In particular, he mentioned a specific assumption set he had seen including: ERP of 6.8% company specific risk premium of 4% He also commented on how haphazard the use of risk premiums can be and referenced a […]
Modelling one side of a two-sided problem
Ah models, my old friends. You’re always wrong, but sometimes helpful. Often dangerous too. A recent article in The Actuary magazine addressed whether “de-risking in members’ best interests?” I say “recent” even though it’s from August because I am a little behind on my The Actuary reading. In the article, the authors demonstrate that by […]