FIE462 Finance Innovations in Insurance

• Topics

  The course is based on cases from the insurance industry. Each case will typically be introduced by a representative from an insurance company/industry, before it is covered in class. All cases represent situations where knowledge from finance is required, in addition to insurance. Common for insurance and finance are assessment, pricing and sharing of risk. Financial risk can sometimes be traded in financial markets. Although, insurance risk also is traded, it is usually not traded in markets in the same way as financial risk.

  As an introduction, the course starts with an overview over finance products with insurance elements (e.g, options, CDOs) and insurance products with finance elements .(e.g., life insurance and pensions). After that, stylised financial balances of insurance companies are analysed to understand basic risk mechanisms of insurance. The major part of the course consists of cases.

  Examples of cases:

  • Insurance regulation (Solvency II, IFRS 17, IORP II).
  • Climate risk.
  • Interest rate guarantees.
  • Directors’ and officers’ liability insurance.
  • Reverse mortgages.

  All cases represent recent challenges for the insurance industry and requires knowledge about finance as well as insurance. This course is suitable for students who are interested in risk, finance and insurance.

• Learning outcome

  After successfully completing the course, the candidate:

  Knowledge

  • Has detailed knowledge about current challenges in the insurance industry.
  • Can understand basic credit risk models such as the Merton model.
  • Can explain financial theories.

  Skills

  • Can apply financial theory and modelling techniques to problems particular to the insurance industry.
  • Can use models to estimate credit spreads.

  General competence

  • Can communicate and discuss challenges faced by the insurance industry with a professional audience.
  • Can understand how risk influences the cost of capital.

• Teaching

  Lectures organised by cases.

  Guest-lectures motivates the cases.

  The course is taught by lectures 2x45 minutes, twice a week.

• Recommended prerequisites

  The course is intended for students with interest in insurance and basic knowledge in finance,

  No restrictions to specific courses, but this course may supplement other insurance courses (e.g., ECO440 Economics of Uncertainty and Insurance and FIE 461 Risk and insurance).

• Compulsory Activity

  One group assignment.

• Assessment

  Individual 4 hour take home exam.

• Grading Scale

  A-F

• Computer tools

  Excel sheets are used extensively.

  Some examples may be illustrated with the use of routines from a programming language.

• Literature

  Briys, de Varenne, 2001, Insurance: From Underwriting to Derivatives: Asset LiabilityManagement in Insurance Companies, John Wiley.

  Eechoudt, Gollier, Schlesinger, 2005, Economic and Financial Decisions under Risk, Princeton University Press.

  Lin, Officer, Zou. 2011, Directors’ and officers’ liability insurance and acquisition outcomes.Journal of Financial Economics 102:507-525.

  Miltersen, Persson, 1999, Pricing rate of return guarantees in a Heath-Jarrow-Mortonframework, Insurance: Mathematics and Economics.

  Nordahl, 2015, Hvorfor kjøper bedrifter forsikring?, Magma.

  (revised reading list will be available when the course starts)

• Permitted Support Material

  No restrictions.