On the Risk of Life Insurance Liabilities: Debunking Some Common Pitfalls

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Abstract
The objective of this paper is to contribute to a better understanding of the driving forces of a life insurance company. More specifically, the issues of the duration and convexity of insurance liabilities and equity are addressed. These issues deserve a careful rethinking given the recent trends that have affected the insurance landscape. A correct assessment of these risk measures is critical as they constitute the primary ingredients of any sound asset-liability management approach. In addition, the effort toward a more detailed and more accurate risk picture of life insurance operations enables one to debunk some pitfalls that are commonly encountered in the insurance industry. This paper was presented at the Financial Institutions Center's May 1996 conference on "
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