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Solvency II, asset liability management, and the European bond market – theory and empirical evidence

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Zeitschrift für die gesamte Versicherungswissenschaft

Abstract

It is already foreseeable that Solvency II will tie capital requirements to a very comprehensive risk definition including underwriting and market risks. The new regulatory framework will demand more sophisticated tools to detect interest rate risks on both sides of the balance sheet in an integrated approach. Efforts by life insurers to level these risks could lead to an increased demand for long term fixed income securities. At this point the question arises if this industry wide change in asset demand will have or already has had an impact on prices of long-term bonds and the yield curve in the Euro-Zone?

Zusammenfassung

Unter Solvency II werden die Kapitalanforderungen direkt durch den Umfang der eingegangenen Risiken, insbesondere Marktrisiken, bestimmt. Deswegen wird der neue regulatorische Rahmen höhere Anforderungen an das Risikomanagement stellen. Die Nivellierung der Marktrisiken wird im Bereich der Lebensversicherung zu einer steigenden Nachfrage nach langlaufenden Bonds führen. Damit verbindet sich die Frage, ob diese Verschiebung der Nachfrage einen Einfluss auf die Preise langfristiger Rententitel und die Zinsstrukturkurve in der Eurozone haben wird bzw. bereits hatte?

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Notes

  1. Brenner and Galai summarize some early tests of the Fisher Hypothesis. See Brenner and Galai (1978), pp. 29–32. More recent tests have, for example, been performed by Berument and Jelassi (2002), pp. 1647–1654 and Granville and Mallick (2004), pp. 88–89.

  2. See, for example, Fung and Chappel (1994), pp. 38–39; Cortes (2006), p. 50. However, it should be stressed that the preferred habitat theory is not new at all. See, for example, Lang and Rasche (1977), p. 16.

  3. This analysis leaves out QIS 3 and 4 as the space of time after execution of QIS 3 was insufficient to derive significant results and QIS 4 has not taken place by the time this research was carried out.

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Authors and Affiliations

  1. Economics & Strategy, NORD/LB, Friedrichswall 10, 30159, Hannover, Deutschland

    Tobias Basse

  2. Norddeutsche Financial & Strategic Advisors, Friedrichswall 10, 30159, Hannover, Deutschland

    Meik Friedrich

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  1. Tobias Basse
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  2. Meik Friedrich
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Correspondence to Meik Friedrich.

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Basse, T., Friedrich, M. Solvency II, asset liability management, and the European bond market – theory and empirical evidence. ZVersWiss 97 (Suppl 1), 155–171 (2008). https://doi.org/10.1007/s12297-008-0041-7

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