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Computation of bonus in multi-state life insurance

Author

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  • Jamaal Ahmad
  • Kristian Buchardt
  • Christian Furrer

Abstract

We consider computation of market values of bonus payments in multi-state with-profit life insurance. The bonus scheme consists of additional benefits bought according to a dividend strategy that depends on the past realization of financial risk, the current individual insurance risk, the number of additional benefits currently held, and so-called portfolio-wide means describing the shape of the insurance business. We formulate numerical procedures that efficiently combine simulation of financial risk with classic methods for the outstanding insurance risk. Special attention is given to the case where the number of additional benefits bought only depends on the financial risk. Methods and results are illustrated via a numerical example.

Suggested Citation

  • Jamaal Ahmad & Kristian Buchardt & Christian Furrer, 2020. "Computation of bonus in multi-state life insurance," Papers 2007.04051, arXiv.org, revised Nov 2023.
    • Handle: RePEc:arx:papers:2007.04051
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    References listed on IDEAS

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    1. Ragnar Norberg, 1999. "A theory of bonus in life insurance," Finance and Stochastics, Springer, vol. 3(4), pages 373-390.
    2. Ninna Reitzel Jensen & Kristian Juul Schomacker, 2015. "A Two-Account Life Insurance Model for Scenario-Based Valuation Including Event Risk," Risks, MDPI, vol. 3(2), pages 1-36, June.
    3. Ramlau-Hansen, Henrik, 1991. "Distribution of Surplus in Life Insurance," ASTIN Bulletin, Cambridge University Press, vol. 21(1), pages 57-71, April.
    4. Møller,Thomas & Steffensen,Mogens, 2007. "Market-Valuation Methods in Life and Pension Insurance," Cambridge Books, Cambridge University Press, number 9780521868778, January.
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    Cited by:

    1. Debbie Kusch Falden & Anna Kamille Nyegaard, 2021. "Retrospective Reserves and Bonus with Policyholder Behavior," Risks, MDPI, vol. 9(1), pages 1-28, January.

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