Question About Separate Accounts about systemicrisk HOT 1 CLOSED

I introduced separate accounts because insurance companies (signally, life insurers) usually accumulate their premiums in investment funds subject to explicit guarantees of return and withdrawal penalties. Those invested premiums are normally registered as both assets and liabilities in balance sheets, therefore a fluctuation in their values does not affect the book equity, only the overall balance volume.

If separate accounts are included in the dataset, the DEBT component of SRISK is reduced so that only x% of liabilities due to separate accounts are included in order to avoid overstating the capital requirements. On the top of that, lowering their contribution to the DEBT component serves as a good workaround for keeping the desired capital ratios.

from systemicrisk.