A market‑ and time‑consistent extension for the EIOPA risk‑margin

In this paper, we investigate market- and time-consistent valuation of life-insurance liabilities, which are long-dated by nature. To obtain a market- and time-consistent
value, the “two-step market evaluation” introduced by Pelsser and Stadje (Math Finance 24:25–65, 2014) is used to evaluate a hybrid payoff with underlying hedgeable
financial and (partially) unhedgeable actuarial risks. The resulting time-consistent and market-consistent (TCMC) price captures the dynamics of the risk drivers over the lifetime of the contract. We show that the EIOPA standard-formula for the risk-margin is not time-consistent, and we construct a time-consistent version of the risk-margin that captures the extra uncertainties from the process dynamics. EIOPA’s standard-formula for the Risk-Margin is compared to the TCMC price for a simple unit-linked  contract and we show that the effects of time-inconsistency are increasing with maturity and are significant for long-dated contracts.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.


Missie en strategie           •           Netwerk           •           Organisatie           •          Podcasts
Board Brief            •            Werkprogramma 2023-2027           •           Onderzoeksagenda


Onze partners

B20160708_university of groningen
B20211201_Cardano_Logo 2021_website
AFM logo 2023 zwart wit
Bekijk al onze partners