The paradox of prudence – macroprudential regulation of life insurance

The paradox of prudence – macroprudential regulation of life insurance

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and macroeconomic models of the financial sector        

Speaker(s): Jochen Kienberger (Allianz Global Life dac)      

The latest financial crisis sparked a vivid debate about financial regulation and systemic risk. The general public, as well as academic debate, seemed to mainly focus on the role of banks and sometimes even neglect the role of other financial institutions; especially in the immediate aftermath of the crisis. From an insurer's point of view there have been some strong cases made on the distinction between banking and insurance with regard to systemic regulation, in particular, by Thimann(2014) and Elliott(2013). The presentation argues that the macroeconomic view of systemic risk should be a core interest of life actuaries as the debate can strongly influence possibilities on the investment and product development side. Recent examples are:
(1) The EU action plan for a Capital Markets Union includes plans to recalibrate the Solvency II Standard Formula for Private Equity and Debt. This is driven by the macro-economic target to make more long term financing sources available for private companies in the EU and for them to be less dependent on the banking sector for corporate financing; as is already the case in the US.
(2) The proposal of Sovereign Bond Backed Securities to introduce a safe asset in the Euro zone.
Furthermore, the presentation aims to propose how actuarial research may be able to contribute to the macroeconomic discussion. Based on existing literature, there does not seem to be a macroeconomic model of the financial sector that includes several financial intermediary types (i.e. banks, life insurers and pension funds) and models their interconnectedness as well as their relationships to households. A brief review of new approaches to macro-economic modelling (e.g. agent-based models) will show the increased complexity of modern models. This complexity may open the door for actuarial researchers to contribute through interdisciplinary work towards some progress in this interesting research area.

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