Economic capital allocation to market and survival risk for pure endowment products
| dc.contributor.advisor | Louw, Simon | en_ZA |
| dc.contributor.author | Pretorius, Jaco Harm | en_ZA |
| dc.contributor.other | Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science. | en_ZA |
| dc.date.accessioned | 2023-05-22T10:38:30Z | |
| dc.date.available | 2023-05-22T10:38:30Z | |
| dc.date.issued | 2023-03 | |
| dc.description | Thesis (MCom)--Stellenbosch University, 2023. | en_ZA |
| dc.description.abstract | ENGLISH ABSTRACT: Economic capital allocation to interest and longevity rate risks is a topic of interest for life insurers. This study aims to provide approaches to allocate the overall economic capital amount into market and survival risk components for a pure endowment product. The calculation of the economic capital figure can be done using either analytical or simulation-based methods. An allocation approach found in literature is then applied to the simulation-based capital quantification. An allocation approach for the analytical method is proposed. A pure endowment contract which faces risks that have been calibrated to a regulatory shock environment over one year backed by a six-month fixed interest risk free asset was used as case study for these allocation approaches. Both methods deliver comparable results, and both conclude that interest rate risk is much more important than the longevity component. The importance of interest rate risks depending on method range between 97% and 99.97% of economic capital allocated to this risk. Sensitivity analysis proved particularly insightful in this study. We found that the analytical approach is more sensitive to the methodology choice in the decomposition step. Both methods provide sensible behaviour across different parameter values. The main advantage of the simulation-based approach is flexibility. The analytical approach delivers a closed form solution for capital allocation which reduces computing time and ease of implementation. This research demonstrates capital allocation provides a valuable tool for understanding the behaviour of capital relative to various risks. This enables insurers to better manage their risk exposure as they can start to see the drivers of risk. | en_ZA |
| dc.description.abstract | AFRIKAANSE OPSOMMING: Ekonomiese kapitaaltoewysing aan rente- en langlewendheidskoersrisiko's is 'n onderwerp van belang vir lewensversekeraars. Hierdie studie het ten doel om benaderings te verskaf om die algehele ekonomiese kapitaalbedrag in mark- en oorlewingsrisikokomponente vir 'n suiwer uitkeerproduk toe te deel. Die berekening van die ekonomiese kapitaalsyfer kan met of analitiese of simulasie-gebaseerde metodes gedoen word. 'n Toedelingsbenadering wat in literatuur gevind word, word dan toegepas op die simulasie-gebaseerde kapitaalkwantifisering. 'n Toekenningsbenadering vir die analitiese metode word voorgestel. As gevallestudie is 'n suiwer uitkeerkontrak met ‘n termyn van een jaar oorweeg. Dit is gekalibreer vir die omgewing deur regulasies geimpliseer en die versekeraar bele in 'n ses maande vaste rente risikovrye bate. Albei metodes lewer vergelykbare resultate, en albei kom tot die gevolgtrekking dat rentekoersrisiko baie belangriker is as die langlewendheidskomponent. Die belangrikheid van rentekoersrisiko wissel tussen 97% en 99.97% van ekonomiese kapitaal wat aan hierdie risiko toegewys is afhangende van metode. Sensitiwiteitsanalise het in hierdie studie besonder insiggewend bewys. Ons het gevind dat die analitiese benadering meer sensitief is vir die metodologiekeuse in die ontbindingstap. Beide metodes verskaf sinvolle gedrag oor verskillende parameterwaardes. Die grootste voordeel van die simulasie-gebaseerde benadering is dat dit in ‘n verskeidenheid situasies toegepas kan word. Die analitiese benadering lewer 'n geslote vorm oplossing vir kapitaaltoewysing wat rekenaartyd verminder makliker implementeer kan word. Hierdie navorsing demonstreer kapitaaltoedeling bied 'n waardevolle hulpmiddel om die gedrag van kapitaal relatief tot verskeie risiko's te verstaan. Dit stel versekeraars in staat om hul risikoblootstelling beter te bestuur aangesien hulle die drywers van risiko kan begin sien. | af_ZA |
| dc.description.version | Masters | |
| dc.format.extent | vi, 59 pages : illustrations, includes annexures | |
| dc.identifier.uri | http://hdl.handle.net/10019.1/127429 | |
| dc.language.iso | en_ZA | en_ZA |
| dc.publisher | Stellenbosch : Stellenbosch University | |
| dc.rights.holder | Stellenbosch University | |
| dc.subject.lcsh | Interest rates | en_ZA |
| dc.subject.lcsh | Risk management | en_ZA |
| dc.subject.lcsh | Risk (Insurance) | en_ZA |
| dc.subject.name | UCTD | |
| dc.title | Economic capital allocation to market and survival risk for pure endowment products | en_ZA |
| dc.type | Thesis | en_ZA |