The Impact of Private Equity on a Life Insurer's Capital Charges Under Solvency II and the Swiss Solvency Test
Journal
Journal of Risk and Insurance
ISSN
0022-4367
Type
journal article
Date Issued
2014-03-01
Author(s)
Abstract (De)
In this article, we conduct an in‐depth analysis of the impact of private equity investments on the capital requirements faced by a representative life insurance company under Solvency II as well as the Swiss Solvency Test. Our discussion begins with an empirical performance measurement of the asset class over the period from 2001 to 2010, suggesting that limited partnership private equity funds may be suited for the purpose of portfolio enhancement. Subsequently, we review the market risk standard approaches set out by both regulatory regimes and outline a potential framework for an internal model. Based on an implementation of these solvency models, it is possible to demonstrate that private equity is overly penalized by the standard approaches. Hence, life insurers aiming to exploit the asset class's return potential may expect significantly lower capital charges when applying an economically sound internal model. Finally, we show that, from a regulatory capital perspective, it can even be less costly to increase the exposure to private rather than public equity.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Blackwell
Volume
81
Number
1
Start page
113
End page
158
Subject(s)
Division(s)
Eprints ID
256850