Interest Rate Models for Pension and Insurance Regulation

D.W.G.A. Broeders, Frank de Jong, Peter Schotman

Research output: Working paperDiscussion paperOther research output

Abstract

Liabilities of pension funds and life insurers typically have very long times to maturity. The valuation of such liabilities introduces particular challenges as it relies on long term interest rates. As the market for long term interest rates is less liquid, financial institutions and the regulator must rely, to some extent, on subjective parameters in regulation. An Ultimate Forward Rate is one way of dealing with the dependence on long term interest rates. We discuss two views with respect to the role of subjective parameters in regulation. These different views relate to the interpretation of a pension contract: a social contract or a financial contract. Furthermore, we assess the implications of different UFR proposals on managing liability risk.
LanguageEnglish
Place of PublicationTilburg
PublisherNETSPAR
Number of pages44
StatePublished - May 2016

Publication series

NameNetspar Industry Paper
VolumeDesign 56

Fingerprint

Liability
Interest rate models
Insurance regulation
Long-term interest rates
Pensions
Forward rates
Pension funds
Insurer
Financial contracts
Financial institutions
Social contract
Time to maturity

Cite this

Broeders, D. W. G. A., de Jong, F., & Schotman, P. (2016). Interest Rate Models for Pension and Insurance Regulation. (Netspar Industry Paper; Vol. Design 56). Tilburg: NETSPAR.
Broeders, D.W.G.A. ; de Jong, Frank ; Schotman, Peter. / Interest Rate Models for Pension and Insurance Regulation. Tilburg : NETSPAR, 2016. (Netspar Industry Paper).
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Broeders, DWGA, de Jong, F & Schotman, P 2016 'Interest Rate Models for Pension and Insurance Regulation' Netspar Industry Paper, vol. Design 56, NETSPAR, Tilburg.

Interest Rate Models for Pension and Insurance Regulation. / Broeders, D.W.G.A.; de Jong, Frank; Schotman, Peter.

Tilburg : NETSPAR, 2016. (Netspar Industry Paper; Vol. Design 56).

Research output: Working paperDiscussion paperOther research output

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T1 - Interest Rate Models for Pension and Insurance Regulation

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N2 - Liabilities of pension funds and life insurers typically have very long times to maturity. The valuation of such liabilities introduces particular challenges as it relies on long term interest rates. As the market for long term interest rates is less liquid, financial institutions and the regulator must rely, to some extent, on subjective parameters in regulation. An Ultimate Forward Rate is one way of dealing with the dependence on long term interest rates. We discuss two views with respect to the role of subjective parameters in regulation. These different views relate to the interpretation of a pension contract: a social contract or a financial contract. Furthermore, we assess the implications of different UFR proposals on managing liability risk.

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Broeders DWGA, de Jong F, Schotman P. Interest Rate Models for Pension and Insurance Regulation. Tilburg: NETSPAR. 2016 May, (Netspar Industry Paper).