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Liquidity risk in asset and liability management

Leal, Hugo
(2024)

Files

Leal_18472100_2024.pdf
  • UCLouvain restricted access
  • Adobe PDF
  • 2.55 MB

Details

Supervisors
Barbarin, Jérôme
Faculty
Faculté des sciences
Degree label
Master [120] en sciences actuarielles, à finalité spécialisée
Abstract
This master’s thesis aims to measure liquidity risk for life insurers. The primary source of liquidity risk is an unexpected increase in surrenders. Indeed, the behaviour of policyholders is often unpredictable. Therefore, insurance companies have to sell assets to meet their financial obligations to policyholders. However, the second source of risk appears when there are not enough liquid assets to meet the demand. If the liquidity risk is disregarded, the surrender risk tends to be underestimated. Moreover, an increase in interest rates can further amplify this risk by diminishing the valuation of bonds within the asset portfolio. The principal issue pertains to devising the quantification of liquidity risk specific to insurance entities.