Welcome to the ARIA 2021 Annual Meeting Agenda App. You are seeing this in simple view. Click on any session to see Presenters, Discussants and a Session Description. Click on Presenters to find a single presenter and their sessions. If you find an error, please email gphillips@aria.org. Registrants have been added and will continue to be updated until 7/29/21 when registration closes. Zoom links will be shared directly with all participants two days prior to the conference. Please make notifications@sched.com a "safe sender" in your email system. We will be sending messages throughout the conference through this medium. 
Back To Schedule
Wednesday, August 4 • 9:00am - 10:30am
6A2 Optimal Capital Structure under the Solvency II Regulation in the Presence of Subordinated Debt and Frictions

Sign up or log in to save this to your schedule, view media, leave feedback and see who's attending!

Feedback form is now closed.
Arina Brutyan, Institute of Insurance Economics, University of St. Gallen; Hato Schmeiser, Institute of Insurance Economics, University of St. Gallen

Under the Solvency II regulation framework, European insurers are allowed to classify subordinated and hybrid debt with bail-in features as risk-based regulatory capital. In this paper, we aim to derive the optimal capital structure of insurance companies under the Solvency II regulation in the presence of subordinated debt and financial market frictions. Thereby, the valuation of the equity, subordinated debt and policyholders stakes is employed by the spread option pricing framework developed in Bjerksund & Stensland (2014). Taking into account the policyholder’s willingness to pay derived by assuming probabilistic insurance pricing by Wakker et al. (1997), we show that it is optimal for insurance companies to fully exploit their subordinated debt capacity. We confront these results with an empirical data set, illustrating that European insurers currently possess large unused capacities for subordinated and hybrid debt.

avatar for Junhao Liu

Junhao Liu

Postdoctoral Research Associate, The University of Sydney


Arina Brutyan

PhD candidate and research Associate, Institute of Insurance Economics, University of St. Gallen
avatar for Hato Schmeiser

Hato Schmeiser

Managing Director, University of St. Gallen, Institute of Insurance Economics

Wednesday August 4, 2021 9:00am - 10:30am EDT