Pricing of Surplus Notes in the Insurance Industry

The Situation

One of the world's largest insurance businesses groups required an economic study to set pricing of surplus notes issued by group entities to related parties.

NERA's Role

NERA experts quantified the spreads associated with the characteristics of surplus notes issued by the group entities by reference to similar transactions between unrelated parties in financial markets. Liquidity adjustments were also made to account for the non-tradable nature of the notes.