The Distributions of Policy Reserves Considering the Policy‐Year Structures of Surrender Rates and Expense Ratios

Chenghsien Tsai, Weiyu Kuo and Derek Mi‐Hsiu Chiang

Journal of Risk & Insurance, 2009, vol. 76, issue 4, 909-931

Abstract: In this article, we examine how the policy‐year structures of expense ratios and surrender rates affect the distributions of policy reserves. Our results show that a convex expense ratio curve, though reduces the mean and the uncertainty of reserves, could make the beneficial impact of surrenders on insurers become detrimental. Our results also show that the convexity of the surrender rate curve is favorable to insurers while the volatilities of surrender rates are unfavorable. We further find that neglecting the policy‐year structures of surrender rates and expense ratios may result in overestimation of the mean and the uncertainty of reserves.

Date: 2009
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https://doi.org/10.1111/j.1539-6975.2009.01324.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:76:y:2009:i:4:p:909-931

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