Alexander Braun
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Prof. Dr.
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Braun
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Alexander
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alexander.braun@unisg.ch
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+41 71 224 3653

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Publication

Performance Measurement in the Life Insurance Industry: An Asset-Liability Perspective

2021-01-01 , Braun, Alexander , Schreiber, Florian

Established risk-adjusted investment performance measures such as the Sharpe, the Sortino or the Calmar Ratio have been developed with an exclusive focus on the mutual and hedge fund industries. Consequently, they are less suited for liability-driven investors such as life insurance companies, whose portfolio choice is materially affected by the substantial interest rate sensitivity of their long-term contractual obligations. In order to tackle this limitation, we introduce the Asset-Liability Sharpe Ratio, which is theoretically motivated, computable based on publicly-available data, incentive compatible, and relevant. Hence, it should be a valuable new tool for performance assessment in the life insurance industry.

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Publication

On Consumer Preferences and the Willingness to Pay for Term Life Insurance

2016-09-16 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian

We run a choice-based conjoint analysis for term life insurance with a sample of 2,017 German consumers, for which data has been collected through web-based experiments. Individual-level part-worth utility profiles are estimated by means of a hierarchical Bayes model. Drawing on the elicited preference structures, we then compute relative attribute importances and different willingness to pay measures. In addition, we present comprehensive simulation results for a realistic competitive setting that allows us to assess market expansion as well as product switching effects. Brand, critical illness cover, and medical underwriting turn out to be the most important nonprice product attributes. Hence, if a policy comprises the favored specifications of those, customers are prepared to accept substantial markups in the monthly premium. Furthermore, preferences vary considerably across the sample, implying that product differentiation is well-suited to avoid price pressure and grow market shares. Yet, we also document a large fraction of individuals that exhibit no willingness to pay for term life insurance at all, presumably due to the absence of a need for mortality risk coverage. Finally, based on estimated demand sensitivities and a set of cost assumptions, it is shown that insurers require an in-depth understanding of preferences to identify the profit-maximizing price.

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InsurTech-Geschäftsmodelle: Disruption oder Evolution?

2018 , Braun, Alexander , Schreiber, Florian

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Measuring the Performance of Life Insurance Companies with Publicly Available Data

2017-10-01 , Braun, Alexander , Schreiber, Florian

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Publication

Return on Risk-Adjusted Capital Under Solvency II: Implications for the Asset Management of Insurance Companies

2018-07-01 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian

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Solvency II's Market Risk Standard Formula: How Credible is the Proclaimed Ruin Probability?

2015-03-01 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian

In this paper, we address the issue of calculating actual ruin probabilities under the market risk standard formula of Solvency II. Our discussion begins with a short overview of the Solvency II market risk module and a partial internal model, which both can be used to calculate the insurer's capital requirements for market risk. Consistent with the Solvency II guidelines, the internal model relies on the value at risk measure with a ruin probability of 0.5 percent per year. In a next step, we then derive efficient portfolios under budget and short sale constraints as well as the prevailing legal investment limits in Germany in order to determine the capital requirements under both approaches for each individual portfolio. Finally, by inverting our internal model, the actual ruin probabilities of the Solvency II standard formula can be calculated. Our analysis reveals that the latter deviate substantially from the proclaimed one by the regulator. Based on these results and given the fact that a large fraction of European insurance companies may apply the standard formula, Solvency II can be expected to create wrong incentives and cause a high level of hidden risks in the insurance sector.

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InsurTech-Geschäftsmodelle: Disruption oder Evolution?

2018-03-31 , Braun, Alexander , Schreiber, Florian , Eckstein, Andreas , Funk-Münchmeyer, Anja , Liebetrau, Axel

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Portfolio Optimization Under Solvency II: Implicit Constraints Imposed by the Market Risk Standard Formula

2017-03-01 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian

We optimize a life insurance company's asset allocation in the context of classical portfolio theory when the firm needs to adhere to the market risk capital requirements of Solvency II. The discussion starts with a brief review of the standard formula and the introduction of a parsimonious partial internal model. Subsequently, we estimate empirical risk–return profiles for the main asset classes held by European insurers and run a quadratic optimization program to derive nondominated frontiers with budget, short-sale, and investment constraints. We then compute the capital charges under both solvency models and identify those efficient portfolio compositions that are permitted for an exogenously given amount of equity. Finally, we consider a systematically selected set of inefficient portfolios and check their admissibility, too. Our results show that the standard formula suffers from severe shortcomings that interfere with economically sensible asset management decisions. Therefore, the introduction of Solvency II in its current form is likely to have an adverse impact on certain parts of the European insurance sector.

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The Current InsurTech Landscape: Business Models and Disruptive Potential

2017-05 , Braun, Alexander , Schreiber, Florian

We take a detailed look at the current InsurTech landscape from the angle of the academic management literature. Our main goals are to establish a common understanding of key concepts, to facilitate the navigation of this rapidly evolving sector, and to provide an intuitive toolkit for an assessment of the entrants’ disruptive potential as well as the selection of adequate response strategies by incumbents. Based on a threedimensional taxonomy, we screen the existing InsurTech startup range. Two aspects stand out in this regard. First, although the vast majority of activities still focuses on the distribution part of the industry ecosystem, full-stack InsurTech risk carriers are starting to become more commonplace. Second, we hardly observe any real game-changing business model innovations yet, as many existing startups are essentially pepping up classical industry approaches with the patterns “e-commerce” or “digitization”. Consistent with this observation, most entrants are not on a disruptive trajectory. Instead, they can be assigned to the category “enablers”, suggesting “cooperation” as the incumbents’ reaction of choice for the majority of currently prevailing scenarios. These findings are confirmed by a comprehensive survey among startups and incumbents. Several directions for the future evolution of the sector are plausible. We identify a number of powerful business model recombinations that are either already launching or clearly visible on the horizon. The largest threats are likely to arise from out-of-the box approaches. One example are digital insurers that add significant value for the customer through personalized coverage based on a comprehensive individual risk assessment. Similarly, genuine peer-to-peer concepts, which enable risk transfer directly to the capital markets, could call the primordial relevance of insurance companies into question and therefore lead to outright disintermediation. Consequently, the still relatively comfortable situation for incumbents that currently prevails may not last for long.

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Publication

Potentials and Challenges of Artifcial Intelligence for Actuarial Departments

2019 , Braun, Alexander , Schreiber, Florian

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