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Estimation of future discretionary benefits in traditional life insurance

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  • Florian Gach
  • Simon Hochgerner

Abstract

In the context of life insurance with profit participation, the future discretionary benefits ($FDB$), which are a central item for Solvency~II reporting, are generally calculated by computationally expensive Monte Carlo algorithms. We derive analytic formulas to estimate lower and upper bounds for the $FDB$. This yields an estimation interval for the $FDB$, and the average of lower and upper bound is a simple estimator. These formulae are designed for real world applications, and we compare the results to publicly available reporting data.

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  • Florian Gach & Simon Hochgerner, 2021. "Estimation of future discretionary benefits in traditional life insurance," Papers 2101.06077, arXiv.org, revised Jul 2022.
    • Handle: RePEc:arx:papers:2101.06077
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    References listed on IDEAS

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    1. Nicole El Karoui & Stéphane Loisel & Jean-Luc Prigent & Julien Vedani, 2017. "Market inconsistencies of the market-consistent European life insurance economic valuations: pitfalls and practical solutions," Post-Print hal-01242023, HAL.
    2. Simon Hochgerner & Florian Gach, 2018. "Analytical Validation Formulas for Best Estimate Calculation in Traditional Life Insurance," Papers 1802.07009, arXiv.org, revised Jul 2019.
    3. Hansjoerg Albrecher & Daniel Bauer & Paul Embrechts & Damir Filipović & Pablo Koch-Medina & Ralf Korn & Stéphane Loisel & Antoon Pelsser & Frank Schiller & Hato Schmeiser & Joël Wagner, 2017. "Asset-Liability Management for Long-Term Insurance Business," Swiss Finance Institute Research Paper Series 17-69, Swiss Finance Institute, revised Jan 2018.
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    5. Diana Dorobantu & Yahia Salhi & Pierre-E. Thérond, 2020. "Modelling Net Carrying Amount of Shares for Market Consistent Valuation of Life Insurance Liabilities," Methodology and Computing in Applied Probability, Springer, vol. 22(2), pages 711-745, June.
    6. Dhaene, Jan & Stassen, Ben & Barigou, Karim & Linders, Daniël & Chen, Ze, 2017. "Fair valuation of insurance liabilities: Merging actuarial judgement and market-consistency," Insurance: Mathematics and Economics, Elsevier, vol. 76(C), pages 14-27.
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    Cited by:

    1. Manuel Hasenbichler & Wolfgang Muller & Stefan Thonhauser, 2023. "The Mean Field Market Model Revisited," Papers 2402.10215, arXiv.org.
    2. Florian Gach & Simon Hochgerner & Eva Kienbacher & Gabriel Schachinger, 2023. "Mean-field Libor market model and valuation of long term guarantees," Papers 2310.09022, arXiv.org, revised Nov 2023.

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