You are here

Procyclicality: Counter Cyclical Capital Buffers

This Working Party will look at different aspects of the capital regulation of Life Insurers and whether changes would reduce the tendency for Capital to be consumed or for Capital Requirements to increase in falling markets. This working party disbanded in June 2018.

Key Objectives:

  • Consider all the key areas where procyclical behaviour might be present in:
    • Insurance risk 
    • Counterparty risk especially that affecting reinsurance and derivative exposures
    • All areas of market risk
    • Liquidity risk especially in stressed environments
    • Consider how regulation and regulatory behaviour can exacerbate and make worse the reactions of life insurers.
  • Consider the behavioural reactions of low or disappointing results on life insurers causing them to take more risk in other areas and how this can lead to more procyclical behaviour after market or insurance volatility.  For example, low returns from equities having to be made up by writing riskier insurance benefits or low bond returns leading insurers to look at riskier investment classes.
  • To consider all within two World views:
    • “mean reverting markets” which assume that markets over-react and that they trend to a norm (maybe a new norm) eventually;
    • “efficient markets” which assume that market values are always a rational view of future financial returns allowing for uncertainty and risk
    • we are not going to comment on which World view is correct.
  • Should there be a countercyclical buffer within capital, or technical provisions or within the ORSA and risk appetite of the insurer?  Where is the best place for it if it is necessary?  Can the current SCR be seen as part of the buffer (i.e. have solvency levels below 100% of SCR)?  What market pressures might exist on life insurers with less than 100% coverage and will this cause procyclical outcomes in the market for insurance?
  • Establish how effective is the current counter-cyclical elements of Solvency II: equity symmetrical adjustment, long term guarantees package.
  • Consider long term and short term movements in markets and insurance experience.  Is the volatility a move to a new market “norm”.  How does anyone spot a “bubble” in asset prices?  Are there any statistics (or combinations of statistics) that can be relied on to give indicators that work over the long term
  • Can regulators “fine tune” regulations in times of stress?  Equally in times of “boom”?
  • Can life insurers take sensible actions that avoid them being open to procyclical spirals of the worst kind?  Examples might be avoiding providing insurance which requires liquid markets at all times in certain assets or in reinsurance all of which might disappear in times of stress, avoiding providing insurance that will gear up losses achieved in the asset portfolio and to consider extreme market scenarios and insurance events when determining strategy.

Key Outputs:

  • There were no key outputs form this working party.
Chair: Steve Dixon
Membership: 12
Established: 2016

Related documents

Contact Details

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

professional.communities@actuaries.org.uk

Filter or search events

Start date
E.g., 23/09/2020
End date
E.g., 23/09/2020

Events calendar

  • Asia Conference Webinar Series

    Webinars
    7 September 2020 - 25 September 2020

    Spaces available

    There will be a prestigious line-up of international speakers discussing the insurance and financial industry’s innovation and change in Asia.  The conference will take place throughout September via an online platform. The webinars consist of plenary speaking sessions and a series of workshop sessions including Life, GI, Data Science, Sustainability, Risk Management and Investment.

    This will be the perfect opportunity for you to discover,ask questions and be at the forefront of current and developing actuarial/financial topics and trends in Asia.

     

  • Spaces available

    This free 90 minute webinar is designed to support the IFoA CPD Co-ordinators, and others, involved in supporting our members to achieve their CPD requirements. 

    The programme will include an overview of the new CPD Scheme; specifically sharing with you key messages to support you implement and embrace the new CPD Scheme for our members within your organisation and regional community; how to arrange a reflective practice discussion; and an interactive reflective practice discussion learning exercise.  In addition, delegates will gain information about accessing, and making the most of the IFoA event Toolkits which you can make use of to run your own in-house events and events for regional communities. 

  • Spaces available

    16.00-17.00 GMT+8

    Consumer expectations are changing Insurance. The Royal Commission in Australia, Design Obligations in the UK, the insurtech ecosystem, and digital-first consumers demanding personalised solutions will all revolutionise how insurance looks like in the future.

  • Spaces available

    12.00-13.00 GMT+8

    This presenter / panel workshop hybrid will be anchored by two presentations examining the socioeconomic, medical and technological factors that will have a significant impact on mortality and our pricing over the next 20 years and beyond. It will also discuss whether significant mortality improvement will continue in Asia or whether varying experience of low improvements or deterioration. 

  • Spaces available

    12.00-13.00 GMT+8

    This presentation aims to provides an overview of the reformation of current Chinese regulatory solvency regime, how industry coping with the new normal after pandemic time and how the reformation of the regulation could help the insurance industry gets back on its feet as well as coming back to the “protection” core value for the policyholders. The presentation would include:

  • Spaces available

    16.00-17.00 (GMT+8) | 09.00-10.00 (BST)

    The basic data of China’s 2nd Critical Illness Mortality Table covers 2000+ products in Chinese market, including about 340 million insurance policies and 5.1 million claimants. Presenter will give the audience a general understanding including but not limited to the following contents:

  • Autumn Lecture 2020: Professor Elroy Dimson

    Online webinar
    14 October 2020

    Spaces available

    Many individuals and institutions have a long-term focus, and invest funds for the benefit of future generations. Their strategy should reflect their long horizon. University endowments are one of the oldest classes of institutional investor, and I will present the first study of the management of these endowments over the very long term.

  • GIRO Conference 2020 Webinar Series

    Available to watch globally in November.
    02-13 November 2020
    Spaces available

    This year's GIRO has been re-designed as a virtual conference to offer members and non-members the opportunity to get up to date content from leading experts in the general insurance field via online webinars. All sessions will be recorded and made available to purchase and re-watch post-event on the IFoA's GI Online Learning Resource area.

  • Spaces available

    Cash-flow driven investing is a game-changer for DB pension funds navigating their end-game. Suitable for sponsors who want to reduce risks on their balance sheets. And for trustees, it shifts the focus to providing greater certainty of returns, managing funding level volatility and ensuring they have enough income to pay cash-flow requirements.

  • Spaces available

    The talk will provide an understanding of the priorities and relationships between deficit reduction contributions, in the context of wider scheme funding, and different types of value outflow from the employer based on the working party’s recently published report.