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Market Based Tools for Managing the Life Insurance Company

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  • Felice, Massimo De
  • Moriconi, Franco

Abstract

In this paper we present an approach to market based valuation of life insurance policies, in the spirit of the NUMAT proposed by Hans Bühlmann (2002) in an editorial in the ASTIN Bulletin. We have experienced the valuation method for more than one decade, both as a pricing procedure applied to policy portfolios of leading insurance companies, and by including the valuation principles into several actuarial teaching activities. Our interest is mainly focused here on participating policies that in Italy are characterized by contractually binding profit sharing rules. The problem of the fair valuation of the liabilities generated to the insurer by these contracts can be conveniently addressed using the methods of contingent claims pricing. These allow to price correctly the options embedded into the policies and to implement consistent plans of asset-liability management. The approach also provides a market based measurement of the value of business in force for outstanding policy portfolios and consistent assessments of the financial risk based capitals.

Suggested Citation

  • Felice, Massimo De & Moriconi, Franco, 2005. "Market Based Tools for Managing the Life Insurance Company," ASTIN Bulletin, Cambridge University Press, vol. 35(1), pages 79-111, May.
    • Handle: RePEc:cup:astinb:v:35:y:2005:i:01:p:79-111_01
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    Citations

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    Cited by:

    1. S. Corsaro & P. De Angelis & Z. Marino & F. Perla, 2011. "Participating life insurance policies: an accurate and efficient parallel software for COTS clusters," Computational Management Science, Springer, vol. 8(3), pages 219-236, August.
    2. Eckhard Platen, 2009. "Real World Pricing of Long Term Contracts," Research Paper Series 262, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Gerstner, Thomas & Griebel, Michael & Holtz, Markus & Goschnick, Ralf & Haep, Marcus, 2008. "A general asset-liability management model for the efficient simulation of portfolios of life insurance policies," Insurance: Mathematics and Economics, Elsevier, vol. 42(2), pages 704-716, April.
    4. Jonas Alm & Filip Lindskog, 2015. "Valuation of Index-Linked Cash Flows in a Heath–Jarrow–Morton Framework," Risks, MDPI, vol. 3(3), pages 1-27, September.
    5. Gerstner, Thomas & Griebel, Michael & Holtz, Markus, 2009. "Efficient deterministic numerical simulation of stochastic asset-liability management models in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 44(3), pages 434-446, June.
    6. Zaglauer, Katharina & Bauer, Daniel, 2008. "Risk-neutral valuation of participating life insurance contracts in a stochastic interest rate environment," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 29-40, August.
    7. Hürlimann, Werner, 2010. "Analytical Pricing of the Unit-Linked Endowment with Guarantees and Periodic Premiums," ASTIN Bulletin, Cambridge University Press, vol. 40(2), pages 631-653, November.
    8. Kevin Fergusson & Eckhard Platen, 2013. "Real World Pricing of Long Term Cash-Linked Annuities and Equity-Linked Annuities with Cash-Linked Guarantees," Research Paper Series 338, Quantitative Finance Research Centre, University of Technology, Sydney.
    9. Luca Anzilli & Luigi De Cesare, 2007. "Valuation of the surrender option in unit-linked life insurance policies in a non-rational behaviour framework," Quaderni DSEMS 20-2007, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.

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