Abstract
This paper examines the effects of hedging in the asymmetric profit and loss distribution mechanisms caused by the complex regulatory framework of the German life insurance business. It studies the effects of applying a hedging strategy to the equity positions in the firm’s asset portfolio from two perspectives: the shareholder perspective and the perspective of the insured. It also addresses the possible trade-off between these interests of the two. The analysis is conducted through a stochastic simulation with 10,000 capital market scenarios. The used asset-liability-management-software is widely used in the insurance sector. This approach allows for a realistic representation of a model company with its performance and management key figures in accordance with the German GAAP. In addition, it creates the possibility of a detailed analysis of the tails of result distributions, which are of particular interest when assessing the effects of hedging.
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