infonet-economy

Im Jahr 2013 stieg die Nachfrage nach verbrieften Versicherungsrisiken auf Rekordniveau. Prof. Dr. Alexander Braun erklärt, inwieweit sich Katastrophenanleihen auch für Vorsorgeeinrichtungen eignen.

Throughout the last decade, the insurance sector has been subject to several major trends. Three of them set the stage for this habilitation: the maturing of the market for insurance-linked securities, the regulatory reforms in Europe aimed at the introduction of new risk-based solvency standards, as well as the increasing need to understand policyholder preferences. This habilitation addresses some of the key knowledge gaps in these areas. The manuscript consists of this summary section as well as a total of seven papers, each of which forms an autonomous part. The following pages contain the outline as well as brief overviews of the seven paper topics. At the end of this first part, the main Research questions are summarized and the quality of the contributions is underlined by an overview of the publications in leading journals of the risk management and insurance discipline.

This dissertation consists of four parts, each of which comprises an individual research paper. The first two parts pertain to the field of insurance-linked capital market instruments. The paper "Performance and Risks of Open-End Life Settlements" is a comprehensive analysis of open-end funds, which exclusively invest in so-called senior life settlements, that is, U.S. life insurance policies traded in the secondary market. It comprises an explanation of the business model of open-end life settlement funds, an empirical analysis of their return distributions, a performance measurement, and an in-depth risk analysis. Although the empirical results suggest that life settlement funds offer attractive returns paired with low volatilities and are virtually uncorrelated with established asset classes, investors need to be aware of latent risk factors such as liquidity, longevity and valuation risks, which are largely not reflected by the examined historical data. Yet, these aspects should be taken into account in order not to overestimate the performance of this asset class.

The second research paper, "Pricing Catastrophe Swaps: A Contingent Claims Approach", centers around the catastrophe (cat) swap, a financial instrument through which natural disaster risks can be transferred between counterparties. It begins with a discussion of the typical contract design, the current state of the market, and major areas of application. In addition, a two stage option-theoretic pricing approach is proposed, which distinguishes between the main risk drivers ex-ante and during the loss reestimation phase. Catastrophe occurrence is modeled as a doubly stochastic Poisson process (Cox process) with mean-reverting Ornstein-Uhlenbeck intensity. Moreover, by fitting various parametric distributions to historical loss data from the U.S., the heavy-tailed Burr distribution is found to be the most adequate representation for loss severities. The pricing model is then applied to market quotes for hurricane and earthquake contracts to derive implied Poisson intensities. Since a first order autoregressive process provides a good fit to the resulting time series, its continuous-time limit, the Ornstein-Uhlenbeck process should be well suited to represent the dynamics of the Poisson intensity in a cat swap pricing model.

With the research paper "Solvency Measurement of Swiss Occupational Pension Funds", the focus in the third part of the dissertation is on solvency measurement in the occupational pension system. Based on the combination of a stochastic pension fund model and a traffic light signal approach, a solvency test for occupational pension funds in Switzerland is proposed. Being designed as a regulatory standard model, the set-up is intentionally kept parsimonious and, assuming normally distributed asset returns, a closed-form solution can be derived. Despite its simplicity the framework comprises the essential risk sources needed in supervisory practice. Due to its ease of calibration, it is additionally well suited for the fragmented Swiss market, keeping costs of solvency testing at a minimum. To illustrate its application, the model is calibrated and implemented for a small sample of ten Swiss pension funds. Moreover, a sensitivity analysis is conducted to identify important drivers of the shortfall probabilities for the traffic light conditions.

Finally, the fourth and last part of the dissertation contains the research paper "Stock vs. Mutual Insurers: Who Does and Who Should Charge More?", which is an empirical and theoretical analysis of the relationship between the premiums of insurers in the legal form of stock and mutual companies. An evaluation of panel data for the German motor liability insurance sector does not provide indications that mutuals charge significantly higher premiums than stock insurers. Subsequently, a comprehensive model framework for the arbitrage-free pricing of insurance contracts is employed to compare stock and mutual insurance companies with regard to the three central magnitudes premium size, safety level, and equity capital. Although, from a normative perspective, there are certain circumstances in which the premiums of stock and mutual insurers should be equal, these situations would generally require the mutual to hold comparatively less capital. This being inconsistent with the empirical results, it appears that the observed insurance prices are not arbitrage-free.

The contribution at hand is a short summary of the working paper "Pricing in the Primary Market for Cat Bonds: New Empirical Evidence", presented by Alexander Braun at the annual meeting of the German Insurance Science Association (DVfVW) in Hannover in March 2012. This working paper contains empirical evidence from the primary market for cat bonds, which provides new insights concerning the prevailing pricing practice of these instruments. For this purpose, transactional information from a multitude of sources has been collected and cross-checked in order to compile a data set comprising virtually all cat bond tranches that were issued between 1997 and 2011. In order to identify the main determinants of the cat bond spread at issuance, a series of OLS regressions with robust standard errors is run. The respective results indicate that, apart from the expected loss, the covered territory, the sponsor, the reinsurance cycle, and the spreads on comparably rated corporate bonds exhibit a significant impact. Based on these findings, a multifactor pricing model for cat bonds in the primary market is then proposed. This model is applicable across all considered territories and perils, exhibits a stable fit with regard to different subsamples used for calibration, and achieves a higher in-sample and out-of-sample accuracy than several competing specifications that have been introduced in earlier work.

We present a four factor model to replicate distressed securities hedge fund returns. The model considers the returns of short put options, a short straddle on bonds, the spread between high yield and Treasury bonds, and stocks with small market capitalization. On the basis of this model, we conduct a multivariate analysis of how fund characteristics affect risk-adjusted performance. A high-water mark and performance-based compensation are positively related to risk-adjusted performance, which is in line with much of the hedge fund literature. In contrast to other work, however, we find that lock-up is negatively related to performance and that fund age is unrelated to performance. Our work provides a better understanding of the nature and critical factors for the success of distressed securities hedge funds.