Sunday, March 08, 2015

Mitteleuropa’s financial sector - looks at the risk to a financial model build on government bond ownership when the returns on  those bonds move towards zero.

 "The result of the simulation is shocking. In the milder of the two stress scenarios, 12 of the 85 German insurance companies under investigation would be insolvent by 2023. In the harsher version, that number would rise to 32 companies with a total market share of 43 per cent. And this is only the life insurance industry. Many German companies have underfunded pension schemes, which may also be in trouble."
It is possible to simulate the return on the capital structure of an insurance company as the portfolio of bonds becomes more dominated by the new issues.  This can highlight the importance of maturity matching, interest rate risk, reinvestment risk and duration.

'via Blog this'

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