A financial analysis of surplus dynamics fordeferred life schemes推荐.pdfVIP

A financial analysis of surplus dynamics for deferred life schemes Rosa Cocozza, Emilia Di Lorenzo, Albina Orlando, and Marilena Sibillo Abstract. The paper investigates the financial dynamics of the surplus evolution in the case of deferred life schemes, in order to evaluate both the distributable earnings and the expected worst occurence for the portfolio surplus. The evaluation is based on a compact formulation of the insurance surplus defined as the difference between accrued assets and present value of relevant liabilities. The dynamic analysis is performed by means of Monte Carlo simulations in order to provide a year-by-year valuation. The analysis is applied to a deferred life scheme exemplar, considering that the selected contract constitutes the basis for many life insurance policies and pension plans. The evaluation is put into an asset and liability management deci- sion-making context, where the relationships between profits and risks are compared in order to evaluate the main features of the whole portfolio. Key words: financial risk, solvency, life insurance 1 Introduction The paper investigates the financial dynamics of surplus analysis with the final aim of performing a breakdown of the distributable earnings. The question, put into an asset and liability management context, is aimed at evaluating and constructing a sort of budget of the distributable earnings, given the current information. To this aim, a general reconstruction of the whole surplus is performed by means of an analytical breakdown already fully developed elsewhere [1], and whose main characteristic is the computation of a result of the portfolio, that actuaries would qualify as surplus, accountants as income and economists as profit. The analysis is developed with the aim of evaluating what share of each year’s earnings can be distributed without compromising future results. This share is only a sort of minimum level of distributed earnings which can se