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Evaluating pension insurance pricing*

Published online by Cambridge University Press:  08 April 2015

DAVID F. BABBEL
DAVID F. BABBEL*
Affiliation:
The Wharton School, University of Pennsylvania, Senior Advisor and Practice Leader of Insurance Economics, Charles River Associates, 1155 Avenue of the Americas, 18th Floor, New York, NY 10036, USA (e-mail: babbel@wharton.upenn.edu)
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Abstract

The Pension Benefit Guaranty Corporation's (PBGC) Pension Insurance Modeling System model has taken on the Herculean task of modeling in detail and under many scenarios the cash outflows associated with the pension obligations, they have assumed. This paper's comments are focused almost entirely upon the PBGC's termination liabilities, and address four pressing issues: (1) the need to discount the liability stream by current riskless interest rates instead of using corporate bond rates that reflect credit risk, call risk, and other risks, or using some ad hoc prescribed average of past rates; (2) the need to use a term structure of interest rates; (3) the need to employ more useful investment management benchmarks; and (4) how to implement a relevant and rigorous liability benchmark.

Keywords

G22H55J32Pension valuationDiscount rateInsurance
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 14 , Issue 2: Special Issue on Assessing the U.S. Pension Insurance Modeling System (PIMS) , April 2015 , pp. 186 - 201
Copyright
Copyright © Cambridge University Press 2015 

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