Project CEMAPRE internal
| Title | Portfolio Management & Investor Profiling ii |
| Participants | Soraia Francisco, Raquel Gaspar (Principal Investigator), Gonçalo Pires, Paulo Silva |
| Summary | "The quantification of regulatory implications presents a formidable challenge, evident is the sparse literature addressing this intricate task. This complexity is further compounded by the interplay of existing regulations when new ones emerge. In highly regulated financial sectors like banking and insurance, exemplified by the formidable Basel and Solvency accords, the weight of regulatory frameworks is substantial. Within the banking realm, the impending Minimum Requirement for Own Funds and Eligible Liabilities (MREL), slated for enforcement in 2024, signifies a transformative shift in the capital and liabilities structure of banks. Mandating the issuance of debt to meet these requirements, MREL leave banks with a possible excess liquidity problem on the one hand, and additional liabilities that need to be satisfied on the other hand. On the insurance front, the advent of the International Financial Reporting Standard 17 (IFRS 17) in 2017, with an effective date of 1 January 2023, introduces a holistic approach to accounting for insurance contracts. This regulation imposes multifaceted implications on insurance companies, demanding the development of internal models for variables previously provided by institutions like EIOPA. A specific challenge faced by insurance companies involves modelling the discount curve (or yield curve) crucial for discounting the myriad cash flows associated with insurance contracts. While the full impact of MREL in banking or IFRS 17 in insurance lies beyond the scope of this project, our objective is to embark on two concrete financial studies. These studies aim to explore potential implications of the aforementioned regulations, even within a simplified framework. By delving into concrete financial scenarios, we aspire to shed light on the practical consequences these regulations may have on banks and insurance companies, respectively." |