Economic Capital calculations using a
„Life DFA“ approach
Magyar Aktuáriusi Társaság
XV. Altenburger Gyula Szimpózium
Balatonvilágos, 2005 május 27-én
AMB Generali Holding AG
Hrabovszki László
Economic Capital calculations using a „Life DFA“ approach
Agenda
Background and requirements
The basic concept and calculations
Possible applications
Economic Capital 2005.05.27
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Economic Capital calculations using a „Life DFA“ approach
Agenda
Background and requirements
The basic concept and calculations
Possible applications
Economic Capital 2005.05.27
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Why do capital and return need more intensive controlling procedures?
Economic risks that were once trivial are gaining in relevance
Neglected risks have gained in importance: e.g. Financial guarantees
10
10 yr risk free government bonds
Guaranteed interest rate – New business
Approx. Guaranteed interest rate
– Business in force
9
8
In %
7
6
10 year government
bonds: 3.48% as of 20th
April 2005
The smaller the difference is,
the bigger the risk that
a loss is incurred
5
4
3
2005 Mrz
2004 Jul
2003 Nov
2003 Mrz
2002 Jul
2001 Nov
2001 Mrz
2000 Jul
1999 Nov
1999 Mrz
1998 Jul
1997 Nov
1997 Mrz
1996 Jul
1995 Nov
1995 Mrz
1994 Jul
1993 Nov
1993 Mrz
1992 Jul
1991 Nov
1991 Mrz
1990 Jul
1989 Nov
1989 Mrz
1988 Jul
1987 Nov
1987 Mrz
2
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Implications for corporate management
Quantifying economic risks and managerial integration
Recent accounting standards, solvency requirements and controlling instruments have not allowed for fundamental business risks
• Asset Liability Management:
Longer duration of the actuarial reserves compared to the corresponding bonds portfolio leads to high
economic capital
Level of share investment is a main driver of required economic capital
interest rate sensitivity in the
• Financial guarantees:
Long-term implicit options, such as guaranteed interest and lump-sum payment options, require sophisticated valuation, where current accounting
methods are rudimentary, and cannot be covered by
hedging strategies on the capital market
• Inefficient incentive structures:
-
New business commissions are determined by the volume of new business acquired and not the added
The return on the actual economic capital is used as an indicator for added value, however, as a rule, this
has no influence on the rewards paid to top management
value this creates
New accounting standards and solvency requirements increase transparency with respect to economic risk exposure
• The increasing importance of a fair value approach to accounting will make economic risks more visible.
As a result, planning, controlling and managing these risks will become more important.
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Demands on fully-integrated control systems
Structure of the AMB Generali group’s controlling tool
Security
Return
Publicity
Ensure solvency
cover cost of capital
create transparency
Performance Management
Capital Management
• Derivation of the total risk exposure and the
resulting economic capital requirement for which
the shareholder is liable
• Ensuring the economic solvency by comparing the
required economic capital with that which is
available
• Management of the shareholders’ expectations on
profit and added value
Standards
• HGB
• IAS/IFRS
• Calculation of risk adjusted performance
• Separation of taxable amounts from non-taxable
external factors
Solvency
• Solvency II
• Reinsurance regulation
Components
• Embedded Value group/
Capital
• Life: ALM/ DFA
• Health: ALM
• Non-life: DFA
• Capital allocation
Components
Economic
• Performance measurements
• Life/Health: NGW
• Non-Life: Combined Ratio
• Performance indicators
• RoEC
• RoEV
Corporate Governance
• Communication of key management
figures
• Controls/Regulation
• Interactive ratings processes
fully-integrated control system
Economic Capital 2005.05.27
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Motivation for DFA Life
Building a stochastic simulation platform
open questions
• How high is the level of required capital for the insurance segment life resulting from a complete and
consistent economic approach?
• How high is the EV in this economic view, if the resulting cash flows are market consistent – i.e. arbitrage
free and discounted?
• Calculation of the economic capital requirements in a “Fair Value” framework
steps towards goal
• Creation of a realistic balance sheet
• Aggregated pricing of guarantees and options
• Derivation of the market consistent Embedded Value
implementation
• Development of a market consistent simulation environment to calculate economic risks and derive
market value balance sheets
• Stochastic ascertainment of the market value of commitments with respect to options and guarantees
Economic Capital 2005.05.27
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Economic Capital calculations using a „Life DFA“ approach
Agenda
Background and requirements
The basic concept and calculations
Deriving realistic balance sheets
Calculating economic capital
Possible applications
Economic Capital 2005.05.27
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Derivation of the Economic Capital required for Life business
New EV-Concepts are driving the development of internal capital models
Realistic balance sheets are derived based on stochastically generated present values
density
economic capital
marketconsistentembe
dded value
economic
capital
Value of costs +
tax
value profit
sharing
P/H options
fair value
fair value
liabilities
assets
XS capital
liabilities
•
path-dependent discounting of guaranteed cash-flows = value of
guarantees
•
the expected present value of future profit sharing depends on the SAA
and management rules describing the dynamic asset-liability
interdependency
•
To what degree are customers financially rational? Assumptions are a
main factor in the value of policyholder options
Value of
guarantees
liabilities split
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How are results generated?
Model framework and implementation strategy
Implementation Strategy
Model framework
• Standard model contains generic products
and German accounting rules
Economic asset scenario generator
-arbitrage free, market consistent scenarios
liability model
• Endowment model
• annuity model
Set of
management
rules
asset model
• class-related models
• Generic products calibrated using EV cash
flows
• Aim to model fund behaviour – including
sensitivities
profit sharing
P/H
S/H
• Asset simulation is similar to bottom-up
model
Risk assessment
• Group model to be implemented in Aachen
Dynamic adjustment
of the SAA
Declaration
of crediting rate
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Modelling management behaviour
Step1: Defining the impact parameters and their interdependencies
Conceptual View as of 30.12.t
Conceptual View as of 30.12.t+1
Economic scenario in t:
-
Pay crediting rate, that was
declared
path-depending realisation of economic
scenario
-
generated through ESG
Calculate:
-
free RfB
hidden reserves
SAA
resulting reserve quota (actual
RQ)
-
Calculate RQmin based on percentile default approach
current SAA
-
If RQmin > actual RQ
reduce equity until RQs are matched
Minimum equity quota is x%
-
If RQmin < actual RQ
increase equity quota by y%
-
expected yield curves
-
expected volatilities
-
path-depending realisation of
economic scenario
-
generated through ESG
Pay crediting rate, that was
declared
of expected yield and
Recalculate RQmin with new, dynamically adapted SAA
Determine new SAA for 1.1.t+1
next year!
Economic scenario:
Calculate:
-
free RfB
hidden reserves
SAA
resulting reserve quota (actual
RQ)
Declare crediting rate for t+1
as discussed for 30.12.t
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Defining a mathematical framework
Step 2a: Assessing the actual financial strength
Quantitative view
V
RQ 
MR
Description
Definitions
MR: mathematical reserves
V= HRINV - HRPART + RfB - TBR
with:
HRINV
: hidden reserves on all
HRPART
: hidden reserves on
participations
RfB
: value of RfB
TBR
: value of terminal bonus
assets
• RQ is the relative share of existing (hidden) reserves on assets
and liabilities (risk-bearing capital) in % of the mathematical
reserves.
• Hidden reserves on participations, that are not fungible, are
excluded from V, as this position should not be released for
profit sharing purposes.
reserve
• However, at the moment hidden reserves on participations
cannot be modelled explicitly due to technical reasons
Economic Capital 2005.05.27
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Defining a mathematical framework
Step 2b: Controlling shortfall risks and adjusting the SAA
Quantitative view
P[( MR  V )(1  R PF )  MR (1  c)]  

(1  c) 
P (1  RQ ) 

PF 
(1  R ) 

c  qPF
 RQ 
 RQ min
PF
1  q
Definitions
c:
PF
R :
:
qPF :
crediting rate declared for the next
period
total return on the assets
targeted shortfall probability within one
year (initially set to 1%)
quantile of the return on the asset
portfolio.
Description
• If the actual RQ is higher than RQmin the equity backing ratio
(EBR) can be max. increased by 2%. If the actual RQ is lower
than RQmin the EBR is to be decreased until RQ and RQmin are
matched.
• The EBR floor reflects the fact that the minimum variance
portfolio contains an approximate equity-share of 5%.
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Defining a mathematical framework
Step 2c: Determining the crediting rate
Quantitative view
c   ( R   1  ( RQ  RQmin )  1)
Definitions
• R is the expected running yield for the next period
•  defines the p/h participation (set to 90%)
• Tau is the time horizon to finance a leverage of the crediting yield
(pure ceteris-paribus calculus facilitating a smoothed management of
reserve levels; initially set to 6 years)
• c:
maximum
increase by 1%
maximum rate of
14%
minimum rate of
guarantee
Description
• R can be regarded as the solid basis for determining the crediting rate. It
is fueled by expected dividends, rent and coupon payments
• The root-term is used to adapt the crediting yield to the current level of
capital adequacy. If excess reserves exist, it is assumed that these excess
reserves are released continuously within a hypothetical time horizon
of t years to finance a leverage of the crediting yield.
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Defining a mathematical framework
Step 2d: Allocating bonuses
Quantitative view

TBP   ( ( R   1  ( RQ  RQ min )  1)  GR


RBP  (1   ) ( ( R   1  ( RQ  RQ min )  1)  GR
Definitions
•
•
•
•
TBP:
RBP:
GR:
omega:

Description
terminal bonus part
running bonus part
guaranteed rate
ratio splitting running bonus part and
the terminal bonus part; defined as:
• At the end of each year, the crediting rate declared in the previous year
is to be paid. As the declared rate c is a cumulated profit sharing yield,
it is to be broken down into the running bonus part and the terminal
bonus part after guaranteed parts are allocated.
c  GR
 GR 
 
 

 c 
2
• delta:
initial scaling factor set to 4
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Defining a mathematical framework
Step 2e: Determining the shareholder’s part
Quantitative view
s  (1   ) ( R   1  ( RQ  RQmin ) 1)  GR)
Definitions
• s:
Description
shareholder’s part
• The shareholder part can be considered as a deterministic factor,
solely depending on declared rates of the previous period.
• If the targeted realisation of hidden reserves is not sufficient to
fund the projected shareholder part, additional hidden reserves are
realised.
• This mechanism guarantees that the total returns that were
expected in the previous period and that were used to declare the
p/h and s/h participation in the current period are matched to the
actual results.
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How can the interdependent rules be validated ?
Step 3: Using historical data for simplified back-testing and calibration
RQ (min), shortfall probability  of 1%
VDL ( = 6 years)
RQ (min), shortfall probability  of 10%
8,0%
8,0%
7,0%
7,0%
6,0%
6,0%
5,0%
5,0%
4,0%
4,0%
3,0%
3,0%
2,0%
declared crediting rate (real world)
2,0%
declared crediting rate (real world)
declared crediting rate (model world)
1,0%
declared crediting rate (model world)
1,0%
0,0%
0,0%
1998
1999
2000
2001
2002
8,0%
AML ( = 3 years)
1998
2003
1999
2000
2001
2002
2003
2002
2003
8,0%
7,0%
7,0%
6,0%
6,0%
5,0%
5,0%
4,0%
4,0%
3,0%
3,0%
2,0%
declared crediting rate (real world)
2,0%
1,0%
declared crediting rate (real world)
declared crediting rate (model world)
1,0%
declared crediting rate (model world)
0,0%
0,0%
1998
1999
2000
2001
2002
2003
1998
1999
2000
2001
Economic Capital 2005.05.27
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Generating results from the simulations
Creating a balance sheet based on market consistent present values
Market value balance sheet as per 31. Dec. 2004 for a life company with a 15%1) investment ratio
Case Study:
in €
Assets
Investments
Real estate
Shares
Bonds
Total assets
1)
in %
15.000.000.000
100,00%
872.250.773
5,82%
2.192.785.012
14,62%
11.934.964.215
79,57%
15.000.000.000
100,00%
Liabilities
McEV
in %
548.710.144
3,66%
14.451.289.856
96,34%
PV tax
333.821.118
2,23%
PV maintenance Costs
347.700.027
2,32%
PV acquisition costs
669.939.976
4,47%
PV remaining RfB and UCGs
433.156.916
2,89%
PV profit sharing
3.200.103.688
21,33%
PV guarantees
9.466.568.130
63,11%
15.000.000.000
100,00%
Liabilities
Liabilities and S/H Equity
including strategic investments
Economic Capital 2005.05.27
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Economic Capital calculations using a „Life DFA“ approach
Agenda
Background and requirements
The basic concept and calculations
Deriving realistic balance sheets
Calculating economic capital
Possible applications
Economic Capital 2005.05.27
18
How are risk measures derived from stochastic projections?
Adequate stress tests are implemented on input parameters
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
SIM#
2298
3924
3376
3188
1560
4316
4743
3914
1841
3352
2823
3635
1859
4233
3869
2
Stress the input parameters to the required level and
look up the simulation path representing the targeted
confidence level
CLASS
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
2004
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
2005
Differenz
49,61%
-50,39%
50,99%
-49,01%
52,96%
-47,04%
54,74%
-45,26%
56,55%
-43,45%
57,05%
-42,95%
57,28%
-42,72%
58,33%
-41,67%
58,73%
-41,27%
59,12%
-40,88%
59,68%
-40,32%
59,74%
-40,26%
60,33%
-39,67%
60,53%
-39,47%
60,76%
-39,24%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
SIM#
1841
2298
4233
1991
2307
1720
4316
980
1859
575
1907
1239
3525
1886
4743
CLASS TERM ZCB 2004 ZCB 2005 Spot 04 Spot 05 Differenz
ZCB
15
0,5392
0,7027 4,20% 2,38% -1,82%
ZCB
15
0,5392
0,6960 4,20% 2,45% -1,76%
ZCB
15
0,5392
0,6936 4,20% 2,47% -1,73%
ZCB
15
0,5392
0,6929 4,20% 2,48% -1,73%
ZCB
15
0,5392
0,6914 4,20% 2,49% -1,71%
ZCB
15
0,5392
0,6904 4,20% 2,50% -1,70%
ZCB
15
0,5392
0,6873 4,20% 2,53% -1,67%
ZCB
15
0,5392
0,6753 4,20% 2,65% -1,55%
ZCB
15
0,5392
0,6732 4,20% 2,67% -1,53%
ZCB
15
0,5392
0,6690 4,20% 2,72% -1,49%
ZCB
15
0,5392
0,6690 4,20% 2,72% -1,49%
ZCB
15
0,5392
0,6687 4,20% 2,72% -1,48%
ZCB
15
0,5392
0,6635 4,20% 2,77% -1,43%
ZCB
15
0,5392
0,6628 4,20% 2,78% -1,42%
ZCB
15
0,5392
0,6611 4,20% 2,80% -1,41%
Calculate the McEV and the fair value of liabilities in the
initial scenario
in %
Passiva
in %
1
in €
Aktiva
Kapitalanlagen
15.000.000.000 100,00%
Immobilien
McEV
872.250.773
5,82%
14.451.289.856
96,34%
2.192.785.012
14,62%
PV Steuer
333.821.118
2,23%
Bonds
11.934.964.215
79,57%
PV Verwaltungskosten
347.700.027
2,32%
PV Abschlusskosten
669.939.976
4,47%
PV verbleibende RfB und UCGs
433.156.916
2,89%
3.200.103.688
21,33%
9.466.568.130
63,11%
Verbindlichkeiten
PV Garantien
Gesamte Aktiva
in €
Basisfall
3,66%
Aktien
PV Überschussbeteiligung
Szenario
548.710.144
15.000.000.000 100,00%
Stressfall I
%
Stressfall II
%
Aktiencrash (99,75%)
vs. Basisfall
sinkende Zinsen (99,75%)
vs. Basisfall
Verbindlichkeiten und EK
15.000.000.000 100,00%
Aktiva
Kapitalanlagen
Gesamte Aktiva
15.000.000.000
15.000.000.000
13.970.181.190
13.970.181.190
-6,87%
-6,87%
16.146.307.858
16.146.307.858
7,64%
7,64%
548.710.144
213.173.449
14.451.289.856
333.821.118
347.700.027
669.939.976
433.156.916
3.200.103.688
9.466.568.130
15.000.000.000
13.757.007.741
209.827.193
347.700.027
669.939.976
349.731.986
2.713.240.429
9.466.568.130
13.970.181.190
-61,15%
445.994.547
-18,72%
-4,80%
-37,14%
0,00%
0,00%
-19,26%
-15,21%
0,00%
-6,87%
15.700.313.310
204.647.876
354.387.017
669.973.615
369.181.802
2.821.286.811
11.280.836.188
16.146.307.858
8,64%
-38,70%
1,92%
0,01%
-14,77%
-11,84%
19,17%
7,64%
Passiva
McEV
Verbindlichkeiten
PV Steuer
PV Verwaltungskosten
PV Abschlusskosten
PV verbleibende RfB und UCGs
PV Überschussbeteiligung
PV Garantien
Verbindlichkeiten und EK
Recalculate the stressed McEV and compare it to the unstressed
548.710.144
548.710.144
McEV to derive the economic capital
213.173.449
445.994.547
Risikokapitalbedarf für Kapitalanlagerisiken vs. Basisfall
ungestresster McEV
gestresster McEV
Economic Capital
3
Aggregation
Economic Capital
Gesamt
335.536.695
102.715.597
Stressfall I
350.906.494
335.536.695
Stressfall II
102.715.597
Aus dem Szenario abgeleitete Korrelation (Aktien, Bonds) = 0
Economic Capital 2005.05.27
19
Stressing the input parameters to a confidence level of 99,75%
5.000 paths x 0,25% targeted shortfall probability =>13th worst is critical
yield curve stress test
stress scenario
worst paths in t+1
equity stress test
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
SIM#
2298
3924
3376
3188
1560
4316
4743
3914
1841
3352
2823
3635
1859
4233
3869
CLASS
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
EQUITY
2004
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
2005
Delta
49,61%
-50,39%
50,99%
-49,01%
52,96%
-47,04%
54,74%
-45,26%
56,55%
-43,45%
57,05%
-42,95%
57,28%
-42,72%
58,33%
-41,67%
58,73%
-41,27%
59,12%
-40,88%
59,68%
-40,32%
59,74%
-40,26%
60,33%
-39,67%
60,53%
-39,47%
60,76%
-39,24%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
SIM#
1841
2298
4233
1991
2307
1720
4316
980
1859
575
1907
1239
3525
1886
4743
CLASS TERM ZCB 2004 ZCB 2005 Spot 04 Spot 05 Delta
ZCB
15
0,5392
0,7027 4,20% 2,38% -1,82%
ZCB
15
0,5392
0,6960 4,20% 2,45% -1,76%
ZCB
15
0,5392
0,6936 4,20% 2,47% -1,73%
ZCB
15
0,5392
0,6929 4,20% 2,48% -1,73%
ZCB
15
0,5392
0,6914 4,20% 2,49% -1,71%
ZCB
15
0,5392
0,6904 4,20% 2,50% -1,70%
ZCB
15
0,5392
0,6873 4,20% 2,53% -1,67%
ZCB
15
0,5392
0,6753 4,20% 2,65% -1,55%
ZCB
15
0,5392
0,6732 4,20% 2,67% -1,53%
ZCB
15
0,5392
0,6690 4,20% 2,72% -1,49%
ZCB
15
0,5392
0,6690 4,20% 2,72% -1,49%
ZCB
15
0,5392
0,6687 4,20% 2,72% -1,48%
ZCB
15
0,5392
0,6635 4,20% 2,77% -1,43%
ZCB
15
0,5392
0,6628 4,20% 2,78% -1,42%
ZCB
15
0,5392
0,6611 4,20% 2,80% -1,41%
• total equity return in t+1 (time horizon of 1 year) is
stressed
• spot rate of zero-coupon bonds with 15 years to maturity is stressed in t+1
(time horizon of 1 year)
• stressed market value of equities (e.g. 60,33 % x MV
equities in base case) is calculated and used as unit
value for new run
• new run for stress testing to be modified in terms of all relevant input
parameters (initial and future yield curves, inflation, equity index and
deflators as market-consistent discounting factors)
Economic Capital 2005.05.27
20
Recalculating the stressed realistic balance sheets
Economic capital derived as D of stressed and unstressed McEV
Stressed market value balance sheet as per 31st Dec 2004 for the case study life company
in €
Basic case
Scenario
Stress case I
%
Equity crash (99,75%)
vs. Basic
case-
Stress case II
decreasing
yield curve (99,75%)
%
vs. Basic
case-
Assets
Investments
Total Assets
15.000.000.000
15.000.000.000
13.970.181.190
13.970.181.190
-6,87%
-6,87%
16.146.307.858
16.146.307.858
7,64%
7,64%
548.710.144
213.173.449
-61,15%
445.994.547
-18,72%
14.451.289.856
333.821.118
347.700.027
669.939.976
433.156.916
3.200.103.688
9.466.568.130
15.000.000.000
13.757.007.741
209.827.193
347.700.027
669.939.976
349.731.986
2.713.240.429
9.466.568.130
13.970.181.190
-4,80%
-37,14%
0,00%
0,00%
-19,26%
-15,21%
0,00%
-6,87%
15.700.313.310
204.647.876
354.387.017
669.973.615
369.181.802
2.821.286.811
11.280.836.188
16.146.307.858
8,64%
-38,70%
1,92%
0,01%
-14,77%
-11,84%
19,17%
7,64%
Liabilities
McEV
Liabilities
PV tax
PV maintenance costs
PV acquisition costs
PV remaining RfB and UCGs
PV profit sharing
PV guarantees
Liabilities and S/H Equity
Economic capital for investment risks vs. basic case
McEV unstressed
McEV stressed
Economic Capital
Aggregation
Economic Capital
Total
350.906.494
548.710.144
213.173.449
335.536.695
548.710.144
445.994.547
102.715.597
Stress case I
335.536.695
Stress case II
102.715.597
scenario-derived correlation (equities, bonds) = 0
Economic Capital 2005.05.27
21
Economic Capital calculations using a „Life DFA“ approach
Agenda
Background and requirements
The basic concept and calculations
Possible applications
Economic Capital 2005.05.27
22
Applying DFA results to internal allocation of capital
AMB Generali: Embedded Value allocation steered by equity requirements
Allocation: € 2.984 m Economic Capital + € 235 m Excess Capital = € 3.219 m EV Group
in Mio. € as per 31.12.2004 (previous year in brackets)
7,3%
235
(5,6%)
212
6,6%
Economic Capital in relation to business volume as per 31. Dez.
2004
(178)
(125)
(4,0%)
Non-Life
1.806
(1.904)
24,5%
(24,7%)
56,1%
(60,3%)
Health
788
(781)
Life
178
(169)
5,5%
Uplift Life 1)
(5,4%)
28,1% (27,0%) of the earned net
premium
3,2% (3,7%) of the technical
reserves
2,6% (2,5%) of the technical
reserves + € 280 m (€ 504 m)
VIF
Life (Economic Capital)
1)
Health (Economic Capital)
Financial services (Economic Capital)
Non life (Economic Capital)
Excess Capital
Uplift EV Life through IFRS shareholder’s equity life
Economic Capital 2005.05.27
23
Linking equity requirements to return on a business segment level Can the added value in life insurance
be adequately measured?
Life: economic profit and loss account
In Mio. € after tax
Internal risk model for the life segment
2004
excess capital
2003
1.223
766
New business margin
10,8%
12,1%
economic
capital
economic
capital
APE 1) of new business
marketconsistent
embedded value
costs and tax
Market
value
profit sharing
New business value
132
93
Operative differences 2)
-11
-11
Realised gains from value in force
118
125
Result after tax
239
207
Fair value of
liabilities
Value of
guarantees
Assets
Liabilities
12.5%
RoEC
Liability split
Possible consequences of the increasing importance of a fair value approach
 Classic life insurance products such as endowments will create more need for Economic Capital (due to investment, calculation and guarantee risks).
Accordingly, the risk adjusted operative profitability of these products will sink.
 Unit linked life insurance without guarantees and insurance policies that cover only biometric risks will require comparatively less Economic Capital. The risk
adjusted operative profitability of these products could, therefore, be higher in the future.
1)
2)
Annualised premium equivalent = regular premiums plus 1/10 of the single premiums
Only biometric and cost-related variances
Economic Capital 2005.05.27
24
Using DFA Life to calculate EEV and McEV
New challenges demand a common stochastic platform
European EV
(EEV)
Marketconsistent EV
(McEV)
Life DFA
Solvency II
Economic Capital 2005.05.27
25
Disclaimer
Some of the statements contained herein are statements of future expectations and other forward-looking statements.
These expectations are based on management's current views and assumptions and involve known and unknown risks and
uncertainties.
The user of such information should recognise that actual results, performance or events may differ materially from such
expectations because they relate to future events and circumstances which are beyond our control including, among others, general
economic and sector conditions.
Neither AMB Generali Holding AG nor any of its affiliates, directors, officers, employees or agents have a duty of care towards any
user of the information provided herein nor any obligation to update any forward-looking information contained in this document.
Economic Capital 2005.05.27
26
Economic Capital calculations using a
„Life DFA“ approach
Balatonvilágos, 2005 május 27-én
AMB Generali Holding AG
László Hrabovszki
Head of life actuarial department
Email: [email protected]