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Liquidity Premium

The Liquidity Premium Working Party aims to provide a summary of how life insurance actuaries currently use the liquidity premium for pricing, valuation and risk management

Key Objectives:

The working party will review a number a number of aspects of the determination and application of the liquidity premium for Life Assurance companies, including:

  • Undertake a review of academic literature relating to the liquidity premium
  • Document the key theoretical approaches used to analyse and calculate the liquidity premium
  • Capture the range of approaches used in practice by firms to determine the liquidity premium used to discount life assurance liabilities both in the UK and other territories including the US and Switzerland
  • Examine the extent to which the liquidity premium has been realised on relevant assets over historic periods
  • Review a range of key issues identified by the working party, including inter alia:
    • Consider the impact of liquidity of liabilities on the use of a liquidity premium
    • Treatment of particular asset classes including: sovereign debt, equity release and alternative assets including infrastructure related bonds
    • Determination of capital requirements associated with the liquidity premium
  • An assessment of the implications of the use of liquidity premium on the behaviour of life assurers, including the impact on:
    • Product pricing, investment strategy, capital allocation and risk management

Outputs:

Chair: Carl Dowthwaite
Membership: 6
Established: 2013

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Contact Details

If you want more information about this research working party please contact the Communities Team.

professional.communities@actuaries.org.uk

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