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Asset management and surplus distribution strategies in life insurance: An examination with respect to risk pricing and risk measurement

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  • Gatzert, Nadine

Abstract

In this paper, we investigate the impact of different asset management and surplus distribution strategies in life insurance on risk-neutral pricing and shortfall risk. In general, these feedback mechanisms affect the contract's payoff and hence directly influence pricing and risk measurement. To isolate the effect of such strategies on shortfall risk, we calibrate contract parameters so that the compared contracts have the same market value and same default-value-to-liability ratio. This way, the fair valuation method is extended since, in addition to the contract's market value, the default put option value is fixed. We then compare shortfall probability and expected shortfall and show the substantial impact of different management mechanisms acting on the asset and liability side.

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  • Gatzert, Nadine, 2008. "Asset management and surplus distribution strategies in life insurance: An examination with respect to risk pricing and risk measurement," Insurance: Mathematics and Economics, Elsevier, vol. 42(2), pages 839-849, April.
    • Handle: RePEc:eee:insuma:v:42:y:2008:i:2:p:839-849
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    Cited by:

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    5. Schlütter, Sebastian & Fianu, Emmanuel Senyo & Gründl, Helmut, 2022. "Responsible investments in life insurers' optimal portfolios under solvency constraints," ICIR Working Paper Series 45/22, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    6. Graf, Stefan & Kling, Alexander & Ruß, Jochen, 2011. "Risk analysis and valuation of life insurance contracts: Combining actuarial and financial approaches," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 115-125, July.
    7. Loriana Pelizzon & Matteo Sottocornola, 2016. "The Impact of the Monetary Policy Interventions on the Insurance Industry," EIOPA Financial Stability Report - Thematic Articles 8, EIOPA, Risks and Financial Stability Department.
    8. Antje Mahayni & Matthias Muck, 2017. "The benefit of life insurance contracts with capped index participation when stock prices are subject to jump risk," Review of Derivatives Research, Springer, vol. 20(3), pages 281-308, October.
    9. Berdin, Elia & Pancaro, Cosimo & Kok Sørensen, Christoffer, 2016. "A stochastic forward-looking model to assess the profitability and solvency of European insurers," SAFE Working Paper Series 137, Leibniz Institute for Financial Research SAFE, revised 2016.
    10. José L. Vilar-Zanón & Barbara Rogo, 2024. "Pricing and Hedging Contingent Claims by Entropy Segmentation and Fenchel Duality," Methodology and Computing in Applied Probability, Springer, vol. 26(4), pages 1-20, December.
    11. Andreas Reuß & Jochen Ruß & Jochen Wieland, 2016. "Participating Life Insurance Products with Alternative Guarantees: Reconciling Policyholders’ and Insurers’ Interests," Risks, MDPI, vol. 4(2), pages 1-18, May.
    12. Eckert, Johanna & Gatzert, Nadine & Martin, Michael, 2016. "Valuation and risk assessment of participating life insurance in the presence of credit risk," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 382-393.
    13. Berdin, Elia, 2016. "Interest rate risk, longevity risk and the solvency of life insurers," ICIR Working Paper Series 23/16, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    14. Zemp, Alexandra, 2011. "Risk comparison of different bonus distribution approaches in participating life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 49(2), pages 249-264, September.
    15. Bohnert, Alexander & Gatzert, Nadine, 2012. "Analyzing surplus appropriation schemes in participating life insurance from the insurer’s and the policyholder’s perspective," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 64-78.
    16. Hainaut, Donatien & Devineau, Laurent, 2024. "Participating life insurances in an equity-Libor Market Model," LIDAM Discussion Papers ISBA 2024015, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    17. Bohnert, Alexander & Gatzert, Nadine & Jørgensen, Peter Løchte, 2015. "On the management of life insurance company risk by strategic choice of product mix, investment strategy and surplus appropriation schemes," Insurance: Mathematics and Economics, Elsevier, vol. 60(C), pages 83-97.

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