Financial sector analyses

2008

Koskela Laura, Ronkainen Vesa, Puustelli Anne:

 Equity and interest rate models in long-term insurance simulations (1,67 Mt)
In this report we review and implement some commonly used stochastic models for equity prices and interest rates with a view to long-term simulation such as in life and pension insurance. We give practical details of the various modeling steps involved, and relate our discussion to the Solvency II project’s internal models.

Kaliva Kasimir, Koskinen Lasse:

 The long-term risk caused by the stock market bubble (113,2 kt)
The evaluation of long-term risks involved in equity investments is one of the key issues in the risk management of pension insurance companies’ investment operations. This research article, which will be published in the scientific journal, Journal of Risk, seeks to provide answers to this central question through quantitative evaluations. The results may help pension institutions to build an appropriate investment portfolio.

Luoma Arto, Puustelli Anne, Koskinen Lasse:

 Bayesian analysis of participating life insurance contracts with American-style options (135,8 kt)
The pricing of life insurance products that contain a financial component in accordance with the methods of financial mathematics as specified in Solvency II is very demanding from the viewpoint of both theory and practical implementation. Practical guidelines for the application of such methods have been virtually nonexistent in professional and scientific forums. This article provides a detailed presentation of pricing using statistical Bayesian methods. We hope that this research article will help insurers in developing their own pricing models.

Korhonen Pekka, Koskinen Lasse:

 Searching guidelines for the use of internal models in insurance company’s risk and capital management (260,8 kt)
Solvency II will provide insurance companies with the opportunity to use the company’s own internal model for determining its capital requirements. This study examines the requirements placed on the company’s management by the use and development of internal models through the application of the tools of operational research. In particular, the viewpoint of a small country is taken into account. The purpose is to provide information in support of the decision-making of both European insurance supervisors and individual insurance companies.

Ronkainen Vesa, Koskinen Lasse, Koskela Laura:

 Challenges in developing internal models for Solvency II 
In the forthcoming Solvency II set of regulatory requirements for the evaluation of insurance companies’ solvency, the use of companies’ (own) internal models is allowed. This article deals with the challenges of developing such models from the point of view of statistics and model errors. Insurance companies developing their own models should pay attention in their planning to the views presented in this article.

2007

Puustelli Anne, Koskinen Lasse, Luoma Arto:

 Bayesian modelling of financial guarantee insurance  (375,9 kt)
The article, written in co-operation with researchers at the University of Tampere, examines the risks of guarantee insurance. Credit loss is modelled according to an approach based on traditional actuarial mathematics, but using modern statistical techniques. The presented mathematical model allows for an assessment of the risks caused by deep economic depressions on guarantee insurance. According to the results, a sufficiently long review period is imperative in risk evaluation. The presented model may also be useful in resolving a highly topical problem, the risk evaluation of securitisation loans. The article was presented at the actuarial and financial mathematics conference AFIR2007.

Kaliva Kasimir, Koskinen Lasse, Ronkainen Vesa:

 Internal models and arbitrage-free calibration (157,7 kt)
The article discusses the practical limitations of the arbitrage-free principle used as the basis for financial mathematics in insurance company modelling. The article surveys the ratio between no-arbitrage and market efficiency and presents behavioural finance criticism and special features of the insurance markets. Special attention is paid to the correctness of the underlying assumptions. Finally, the Bayesian averaging approach that forms the basis of the models is presented as a practical solution for model error management. The article was also presented at the actuarial and financial mathematics conference AFIR2007.

Alverez Luis, Koskinen Lasse:

Rahoituksen teoriaa ja sovelluksia aktuareille
This report is a new, revised and expanded edition of the ISA Publication Series Report 2004:2 intended as study material for the investment module of the actuarial degree. It is hoped that this report also benefits other people interested in the theory of financing and the insurance business, with the purpose of familiarising the reader with the basic theory of financing and, through this, provide tools for understanding and applying a more profound theory construction.

Hilli Petri:

Sijoitusuudistuksen vaikutus yksityisen sektorin työeläkevakuutusmaksuun
Drawn up by researchers of the Helsinki School of Economics, this report presents preliminary calculations on the development of the Finnish employee pension contribution until the year 2034, both under the present employee pension scheme and under the scheme complying with the Government Bill issued on 8 June 2006. The calculations take account of the uncertainty related to investment income, insurance business cash flows, total payroll and old age pension expenditure.

Hilli Petri, Pennanen Teemu:

Työeläkelaitosten kassavirtavastuumalli
Drawn up by researchers of the Helsinki School of Economics, this report presents a model based on simple numerical calculation which is intended for the calculation of cash flows and liabilities related to Finnish employee pension insurance companies’ statutory insurance business. The model has been implemented in the evaluation of the investment reform performed within the Finnish employee pension scheme (see the attached report by Hilli).

2006

Kaliva Kasimir:

 Inflation expectations under level shifts in the inflation process (1,16 Mt)
Research Reports 2006:1, Insurance Supervisory Authority of Finland
This study concerns the inflation process. Inflation is a central risk factor both in insurance and investment operations.

Kaliva Kasimir, Koskinen Lasse:

 Stock market bubbles, inflation and investment risk
Research Reports 2006:2, Insurance Supervisory Authority of Finland.
The research focuses on “stock market bubbles” affecting the solvency of insurance institutions, i.e. overvalued shares (stock) that do not reflect companies’ financial situations. Such a bubble is usually followed by a crash in stock market prices. The method presented has been applied by the Insurance Supervisory Authority e.g. in the risk analysis of investment operations within pension systems.

Kaliva Kasimir, Koskinen Lasse:

Stock market bubbles, inflation and investment risk (375,5 kt) (The version that appeared in International Review of Financial Analysis).

Koskinen Lasse:

Statistical applications in Finnish pension insurance. Festschrift for Tarmo Pukkila on his 60th birthday. Eds. Liski at al. University of Tampere, pp.145-157, 2006.
This esearch presents sophisticated applications of risk management in Finnish pension insurance systems and institutions. The article is useful, for example, in teaching and when describing innovations in risk management within the Finnish pension system to foreigners.

Berglund Raoul, Koskinen Lasse, Ronkainen Vesa:

Aspects on calculating the Solvency Capital Requirement with the use of internal models
28th International Congress of Actuaries, 2006.
This study relates to Solvency II, a solvency regulation framework reform project for insurance companies in the European Union. The research emphasises the importance of detailed guidance to impartial supervision and the implementation of a model required for the special problems that smaller insurance companies face.

Korhonen Pekka, Koskinen Lasse, Voutilainen Raimo:

A financial alliance compromise between executives and supervisory authorities
European Journal of Operational Research 175, pp. 1300-1310, 2006.
The research was conducted in co-operation with Prof. Pekka Korhonen and Raimo Voutila, researcher, of the Helsinki School of Economics. It examines insurance and banking consortiums, focusing on the consolidation of insurance and banking supervisory perspectives.

Korhonen Pekka, Koskinen Lasse, Voutilainen Raimo:

A customer view on the most preferred alliance structure between banks and insurance companies
Zeitschrift Fuer Betriebswirtschaft, 76, H.2, pp. 1-26, 2006.
The research was conducted in co-operation with Prof. Pekka Korhonen and Raimo Voutila, researcher, of the Helsinki School of Economics. The study examines insurance and banking consortiums, and is a continuation of the research referred to in point 5 above. This study aims at the extensive consolidation of the viewpoints of various supervisors, managers and customers.

In addition, an article by researchers at the Helsinki School of Economics on investment model applicable to risk management within pension institutions has been published in the Insurance Supervisory Authority’s publication series, “Various handouts”. This research was conducted as part of a project managed by the Ministry of Social Affairs and Health.

Hilli Petri, Pennanen Teemu:

Sijoitustuottomalli työeläkelaitoksille (Investment model for occupational pension institution)
Various Handouts 2006:3, The Insurance Supervisory Authority.

 

 

 

17 December 2009

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