Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-10T17:00:31.621Z Has data issue: false hasContentIssue false
  • English
  • Français

The aporetic financialisation of insurance liabilities: Reserving under Solvency II

Published online by Cambridge University Press:  09 November 2023

Charalampos Fytros
Charalampos Fytros*
Affiliation:
University of Piraeus, Greece
*
Corresponding author: Charalampos Fytros, University of Piraeus, Central Building 80, M. Karaoli & A. Dimitriou Street, 18534, Piraeus, Greece. Email: chfytros@outlook.com.gr.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

The valuation of insurance liabilities has traditionally been dealt with by actuaries, who closely monitored underlying illiquid features, assumed a long-term perspective, and exercised their own subjective, expert judgment. However, the new EU regulatory regime of Solvency II (S2) has come to require market-consistent valuation supplemented by a risk-sensitive capital. This is considered an unwanted shift towards short-termism that is misaligned with the industry's long term and countercyclical character. The new principles place the ‘technicalising’ logic of financial economics over ‘contextualising’ actuarial know-how. Following existing analytics of valuation from the ethnography of reinsurance markets and the social studies of finance, such requirements appear either as an alarming attack against the actuarial component of traditional valuation practice, or else as a preserver of it, through a process of enfolding at the heart of the financialisation project. This article holds that the case of S2 challenges both these analytics of valuation. S2’s financialisation project, precisely by attempting to construct itself, deconstructs itself into an actuarial project, in a recurring, aporetic process. In this respect, fair (or otherwise) valuation remains always undecidable, inconclusive, and thus responsible.

Keywords

FinancialisationinsuranceSolvency IIfair valueactuarial valuationaporiaautoimmunity
Type
Article
Information
Finance and Society , Volume 7 , Issue 1 , 2021 , pp. 20 - 39
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits noncommercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
© 2021 The Author(s)

References

Beunza, D., MacKenzie, D., Millo, Y. and Pardo-Guerra, J.P. (2010) Impersonal efficiency and the dangers of a fully automated securities exchange. Foresight Driver Review, DR11.Google Scholar
Bougen, P. (2003) Catastrophe risk. Economy and Society, 32(2): 253–74.CrossRefGoogle Scholar
Bromwich, M. (2007) Fair values: Imaginary prices and mystical markets. In: Walton, P. (ed.) The Routledge Companion to Fair Value and Financial Reporting. London: Routledge, 46–68.Google Scholar
Burke, A. (2002) Aporias of security. Alternatives, 27(1): 1–27.CrossRefGoogle Scholar
Caputo, J.D. (1999) Radical Hermeneutics: Repetition, Deconstruction, and the Hermeneutic Project. Bloomington: Indiana University Press.Google Scholar
Caputo, J.D. (2000) More Radical Hermeneutics: On Not Knowing Who We Are. Bloomington: Indiana University Press.Google Scholar
CEA Group Consultatif (2007) Solvency II Glossary. Brussels: CEA.Google Scholar
Chatzivassiloglou, I. (2017) η απΌτίμηση των στΌιχɛίων ɛνɛργητικΌύ και υπΌχρɛώσɛων των (αντ)ασΦαλιστικών ɛπιχɛιρήσɛων σύμΦωνα μɛ τη Φɛρɛγγυότητα ιι. Bank of Greece Economic Bulletin, 45 (July): 73–106.Google Scholar
Coelho, H. (2015) The twists and turns of Solvency II negotiations. InsuranceERM, 22 December.Google Scholar
Collins, D., Dewing, I. and Russell, P. (2009) The actuary as fallen hero: On the reform of a profession. Work, Employment and Society, 23(2): 249–66.CrossRefGoogle Scholar
Conger, R., Hurley, J. and Lowe, S. (2004) How might the presentation of liabilities at fair value have affected the reported results of US property and casualty insurers? In: The Fair Value of P&C Liabilities: Practical Implications. Arlington, VA: Casualty Actuarial Society, 1–114.Google Scholar
Courchene, J. et. al. (2008) Valuation of non-life technical provisions under Solvency II. Available at: <https://uk.milliman.com/en-gb/insight/periodicals/st/pdfs/valuation-of-nonlife-technical-provisions-under-solvency-ii/>. Accessed 13 August 2018..+Accessed+13+August+2018.>Google Scholar
Cundy, C. (2019) What's next for the MA and VA? InsuranceERM, 4 July.Google Scholar
Danielsson, J. and Song Shin, H. (2002) Endogenous risk. In: Modern Risk Management: A History. London: Risk Books, 297-315. Available at: <https://riskresearch.org/papers/DanielssonShin2002/>. Accessed 15 January 2018.Google Scholar
Danielsson, J., de Jong, F., Laux, C., Laeven, R., Perotti, R. and Wuthrich, M. (2011) A prudential regulatory issue at the heart of Solvency II. DSF Policy Brief, 31 March.Google Scholar
Derrida, J. (1993) Aporias. Stanford, CA: Stanford University Press.Google Scholar
Derrida, J. (2001) Deconstruction Engaged: The Sydney Seminars. Sydney: Power Publications.Google Scholar
Dewey, J. (1915) The logic of judgments of practice. The Journal of Philosophy, Psychology and Scientific Methods, 12(19): 505–23.CrossRefGoogle Scholar
Doff, R. (2016) The final Solvency II framework: Will it be effective? The Geneva Papers on Risk and Insurance, 41: 587–607.CrossRefGoogle Scholar
EIOPA (2018a) Review of the Solvency Capital Requirement (SCR) standard formula: Frequently asked questions. 28 February.Google Scholar
EIOPA (2018b) Opinion on non-life cross border insurance business of a long-term nature and its supervision. 21 December.Google Scholar
Ellul, A., Jotikasthira, C. and Lundblad, C.T. (2011) Regulatory pressure and fire sales in the corporate bond market. Journal of Financial Economics, 101(3): 596–620.CrossRefGoogle Scholar
Esposito, E. (2013) The structures of uncertainty: Performativity and unpredictability in economic operations. Economy and Society, 42(1): 102–29.CrossRefGoogle Scholar
Focarelli, D. (2017) Why insurance regulation is crucial for long-term investment and economic growth. In: Marano, P. and Siri, M. (eds.) Insurance Regulation in the European Union: Solvency II and Beyond. Basingstoke: Palgrave Macmillan, 339–59.Google Scholar
Friedland, J. (2010) Estimating unpaid claims using basic techniques. Casualty Actuarial Society. Available at: <https://www.casact.org/library/studynotes/friedland_estimating.pdf/>. Accessed 20 November 2020..+Accessed+20+November+2020.>Google Scholar
Hulle, V.K. (2017) Solvency II: Reasonable expectations. In: Marano, P. and Siri, M. (eds.) Insurance Regulation in the European Union: Solvency II and Beyond. Basingstoke: Palgrave Macmillan, 313–38.Google Scholar
IAA (International Actuarial Association) (2009) Measurement of Liabilities for Insurance Contracts: Current Estimates and Risk Margin. Available at: <https://www.actuaries.org/LIBRARY/Papers/IAA_Measurement_of_Liabilities_2009-members.pdf>. Accessed 25 August 2017..+Accessed+25+August+2017.>Google Scholar
IFA (Institute and Faculty of Actuaries) (2013) Solvency II Technical Provisions for General Insurers. Available at: <https://www.actuaries.org.uk/system/files/documents/pdf/sii-tp-wp-paper-giro40.pdf>. Accessed 13 July 2018..+Accessed+13+July+2018.>Google Scholar
Jarzabkowski, P., Bednarek, R. and Spee, P. (2015) Making a Market for Acts of God: The Practice of Risk Trading in the Global Reinsurance Industry. Oxford: Oxford University Press.CrossRefGoogle Scholar
Kessler, D., de Montchalin, A. and Thimann, C. (2017) The macroeconomic role of insurance. In: Hufeld, F., Koijen, S.J. and Thimann, C. (eds.) The Economics, Regulation, and Systemic Risk of Insurance Markets. Oxford: Oxford University Press, 20–54.Google Scholar
Knorr Cetina, K. (1999) Epistemic Cultures: How the Sciences Make Knowledge. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Koijen, R.S.J. and Yogo, M. (2015) The cost of financial frictions for life insurers. American Economic Review, 105(1): 445–75.CrossRefGoogle Scholar
MacKenzie, D. (2006) An Engine, Not a Camera: How Financial Models Shape Markets. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
MacKenzie, D. (2003) An equation and its worlds: Bricolage, exemplars, disunity and performativity in financial economics. Social Studies of Science, 33(6): 831–68.CrossRefGoogle Scholar
Mennicken, A. and Power, M. (2015) Accounting and the plasticity of valuation. In: Antal, A.B., Hutter, M. and Stark, D. (eds.) Moments of Valuation: Exploring Sites of Dissonance. Oxford: Oxford University Press, 208–28.Google Scholar
Merz, M. and Wüthrich, M.V. (2008) Modeling the claims development result for solvency purposes. Casualty Actuarial Society E-Forum, Fall: 542–68.Google Scholar
Millo, Y. and MacKenzie, D. (2009) The usefulness of inaccurate models: Towards an understanding of the emergence of financial risk management. Accounting, Organizations and Society, 34(5): 638–53.CrossRefGoogle Scholar
Morley, J. (2014) Sequences of Change in Financial Reporting: The Influence of Financial Economics. Doctoral thesis (PhD), London School of Economics and Political Science.CrossRefGoogle Scholar
Morris Report (2005) Morris Review of the Actuarial Profession: Final Report. London: HM Treasury.Google Scholar
Muniesa, F. (2007) Market technologies and the pragmatics of prices. Economy and Society, 36(3): 377–95.CrossRefGoogle Scholar
Muniesa, F. (2014) The Provoked Economy: Economic Reality and the Performative Turn. London: Routledge.CrossRefGoogle Scholar
Muniesa, F., Millo, Y. and Callon, M. (2007) An introduction to market devices. The Sociological Review, 55(2): 1–12.CrossRefGoogle Scholar
Naas, M. (2008) Derrida From Now On. New York: Fordham University Press.CrossRefGoogle Scholar
Penman, S.H. (2007) Financial reporting quality: Is fair value a plus or a minus? Accounting and Business Research, 37(S1): 33–44.CrossRefGoogle Scholar
Pickering, A. (1993) The mangle of practice: Agency and emergence in the sociology of science. American Journal of Sociology, 99(3): 559–89.CrossRefGoogle Scholar
Power, M. (2010) Fair value accounting, financial economics and the transformation of reliability. Accounting and Business Research, 40(3): 197–210.CrossRefGoogle Scholar
Spears, T. (2017) Matching the market: Calibration and the working practices of quants. In: Boussard, V. (ed.) Finance at Work. London: Routledge, 42–56.Google Scholar
Spears, T. (2018) The price of an uncertain promise: Fair value accounting and the shaping of bank counterparty risk valuation practices, https://osf.io/z8w36.CrossRefGoogle Scholar
Svetlova, E. (2012) On the performative power of financial models. Economy and Society, 41(3): 418–34.CrossRefGoogle Scholar
Swarup, A. (2012) A well-intentioned folly: The macroeconomic implications of Solvency II. Economic Affairs, 32(3): 17–23.CrossRefGoogle Scholar
Thimann, C. (2017) What is insurance and how does it differ from general finance? In: Hufeld, F., Koijen, S.J. and Thimann, C. (eds.) The Economics, Regulation, and Systemic Risk of Insurance Markets. Oxford: Oxford University Press, 5–19.Google Scholar
Turnbull, C. (2017) A History of British Actuarial Thought. Cham: Springer.CrossRefGoogle Scholar
Zimmerman, D. (2007) A critique of fair value as a method for valuing insurance liabilities. The Financial Reporter, Dec. (71): 17–21.Google Scholar
Zyla, M.L. (2012) Fair Value Measurements: Practical Guidance and Implementation. Hoboken, NJ: Wiley.CrossRefGoogle Scholar