Workshop in Capital Markets: An Chen

11 October 2012, h 12:00

“A risk-based premium: what does it mean for DB plan sponsors?”
Ann Chen (Institut für Versicherungswissenschaften, University of Ulm)
This paper develops a risked-based premium calculation model for the insurance provided by the Pension Benefit Guaranty Corporation (PBGC). It takes account of the pension fund’s and the plan sponsor’s investment policy and incorporates distress termination triggered by the sponsor’s underfunding. We empirically illustrate our theoretical pricing formula for the 100 biggest American DB sponsoring companies.
Our result clearly casts doubt on the current practice where about 70% of the PBGC premiums charged are flat. We observe that the funding ratio, the leverage, and the asset volatility of the sponsoring companies are three key risk factors in a risk-based premium calculation.
11 October 2012, h 12:00
Collegio Carlo Alberto, Sala Rossa