The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil
<p>The Brazilian regulation for applying the Liability Adequacy Test (LAT) to technical provisions in insurance companies requires that the current estimate is discounted by a term structure of interest rates (hereafter TSIR). This article aims to analyze the LAT results, derived from the use...
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| Format: | Article |
| Language: | English |
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Universidade de São Paulo
2015-08-01
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| Series: | Revista Contabilidade & Finanças |
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| Online Access: | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772015000200223&lng=en&tlng=en |
| _version_ | 1818357187453386752 |
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| author | Antonio Aurelio Duarte Aldy Fernandes da Silva Luciano Vereda Oliveira Elionor Farah Jreige Weffort Betty Lilian Chan |
| author_facet | Antonio Aurelio Duarte Aldy Fernandes da Silva Luciano Vereda Oliveira Elionor Farah Jreige Weffort Betty Lilian Chan |
| author_sort | Antonio Aurelio Duarte |
| collection | DOAJ |
| description | <p>The Brazilian regulation for applying the Liability Adequacy Test (LAT) to technical provisions in insurance companies requires that the current estimate is discounted by a term structure of interest rates (hereafter TSIR). This article aims to analyze the LAT results, derived from the use of various models to build the TSIR: the cubic spline interpolation technique, Svensson's model (adopted by the regulator) and Vasicek's model. In order to achieve the objective proposed, the exchange rates of BM&FBOVESPA trading days were used to model the ETTJ and, consequently, to discount the cash flow of the insurance company. The results indicate that: (i) LAT is sensitive to the choice of the model used to build the TSIR; (ii) this sensitivity increases with cash flow longevity; (iii) the adoption of an ultimate forward rate (UFR) for the Brazilian insurance market should be evaluated by the regulator, in order to stabilize the trajectory of the yield curve at longer maturities. The technical provision is among the main solvency items of insurance companies and the LAT result is a significant indicator of the quality of this provision, as this evaluates its sufficiency or insufficiency. Thus, this article bridges a gap in the Brazilian actuarial literature, introducing the main methodologies available for modeling the yield curve and a practical application to analyze the impact of its choice on LAT.</p> |
| first_indexed | 2024-12-13T20:09:07Z |
| format | Article |
| id | doaj.art-84626fecffd04124a5a7785738f0c3a4 |
| institution | Directory Open Access Journal |
| issn | 1808-057X |
| language | English |
| last_indexed | 2024-12-13T20:09:07Z |
| publishDate | 2015-08-01 |
| publisher | Universidade de São Paulo |
| record_format | Article |
| series | Revista Contabilidade & Finanças |
| spelling | doaj.art-84626fecffd04124a5a7785738f0c3a42022-12-21T23:32:57ZengUniversidade de São PauloRevista Contabilidade & Finanças1808-057X2015-08-01266822323610.1590/1808-057x201500420S1519-70772015000200223The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in BrazilAntonio Aurelio DuarteAldy Fernandes da SilvaLuciano Vereda OliveiraElionor Farah Jreige WeffortBetty Lilian Chan<p>The Brazilian regulation for applying the Liability Adequacy Test (LAT) to technical provisions in insurance companies requires that the current estimate is discounted by a term structure of interest rates (hereafter TSIR). This article aims to analyze the LAT results, derived from the use of various models to build the TSIR: the cubic spline interpolation technique, Svensson's model (adopted by the regulator) and Vasicek's model. In order to achieve the objective proposed, the exchange rates of BM&FBOVESPA trading days were used to model the ETTJ and, consequently, to discount the cash flow of the insurance company. The results indicate that: (i) LAT is sensitive to the choice of the model used to build the TSIR; (ii) this sensitivity increases with cash flow longevity; (iii) the adoption of an ultimate forward rate (UFR) for the Brazilian insurance market should be evaluated by the regulator, in order to stabilize the trajectory of the yield curve at longer maturities. The technical provision is among the main solvency items of insurance companies and the LAT result is a significant indicator of the quality of this provision, as this evaluates its sufficiency or insufficiency. Thus, this article bridges a gap in the Brazilian actuarial literature, introducing the main methodologies available for modeling the yield curve and a practical application to analyze the impact of its choice on LAT.</p>http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772015000200223&lng=en&tlng=enestrutura a termo da taxa de jurosInternational Financial Reporting Standardsprovisões técnicasteste de adequação do passivo |
| spellingShingle | Antonio Aurelio Duarte Aldy Fernandes da Silva Luciano Vereda Oliveira Elionor Farah Jreige Weffort Betty Lilian Chan The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil Revista Contabilidade & Finanças estrutura a termo da taxa de juros International Financial Reporting Standards provisões técnicas teste de adequação do passivo |
| title | The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil |
| title_full | The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil |
| title_fullStr | The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil |
| title_full_unstemmed | The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil |
| title_short | The Term Structure of Interest Rates and its Impact on the Liability Adequacy Test for Insurance Companies in Brazil |
| title_sort | term structure of interest rates and its impact on the liability adequacy test for insurance companies in brazil |
| topic | estrutura a termo da taxa de juros International Financial Reporting Standards provisões técnicas teste de adequação do passivo |
| url | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772015000200223&lng=en&tlng=en |
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