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Life Insurer Risk-Based Capital: An Option Pricing Approach, Samuel H. Cox, Arthur M.B. Hogan
Life Insurer Risk-Based Capital: An Option Pricing Approach, Samuel H. Cox, Arthur M.B. Hogan
Journal of Actuarial Practice (1993-2006)
This paper uses an option pricing framework to estimate life insurer risk-based capital. Stock market data and statutory asset and liability data are used to calculate the implied level of statutory risk-based capital for each of 18 insurers. We calculate the level of risk-based capital required to avoid subsidy from the guaranty fund. Our results suggest that less capital is required than that required under the New York actuarial risk-based capital formula. Firm rankings, however, are similar under both methods, although the methods are not directly comparable. We also determine the level of capital required if the subsidy provided to …