Research and publications

QIS4: significant improvements, but the main risk for life insurance is not taken into account in the standard formula

In its response to the CEIOPS consultation on the preliminary technical specifications for the fourth quantitative impact survey (QIS4), EDHEC argues that the main risk faced by life insurance companies is not taken into account in the standard formula. This risk is that following market (or other significant) losses, a wave of surrenders leaves shareholders bearing the entirety of losses. This is the phenomenon that led to such bankruptcies as that of Executive Life, where losses made public by rating agencies and the media triggered a wave of surrenders and bankruptcy–even though the losses alone were thought bearable for some time.

Author(s):

Samuel Sender

Summary:

In its response to the CEIOPS consultation on the preliminary technical specifications for the fourth quantitative impact survey (QIS4), EDHEC argues that the main risk faced by life insurance companies is not taken into account in the standard formula. This risk is that following market (or other significant) losses, a wave of surrenders leaves shareholders bearing the entirety of losses. This is the phenomenon that led to such bankruptcies as that of Executive Life, where losses made public by rating agencies and the media triggered a wave of surrenders and bankruptcy–even though the losses alone were thought bearable for some time.

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Type :	EDHEC Publication
Date :	14/02/2008
Keywords :	Institutional Investment

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Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.

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Marking the priority assigned by the School to sustainability issues and building on its research programmes exploring the relationships between climate change and finance, EDHEC-Risk Institute became EDHEC-Risk Climate Impact Institute in October 2022. The Institute's mission is to help private and public decision-makers manage climate-related financial risks and make the best use of the financial tools available to transition to low-emission and climate-resilient economies. The Institute’s research programmes explore the relationships between climate change and finance and our key ambition is to become a leading academic reference point for long-term investors, helping them to manage the asset-pricing implications of climate change as well as mitigation and adaptation efforts.