A sharing rule for multi-period interest-sensitive insurance contracts

Hangsuck Lee, Hongjun Ha and Minha Lee

The North American Journal of Economics and Finance, 2024, vol. 71, issue C

Abstract: As sales of interest-sensitive products grow in insurance markets, determining a sharing rule for allocating investment returns between a policyholder and an insurer is crucial. This paper discusses a theoretical sharing rule for a multi-period contract, reflecting that the insurer’s investment efforts are unobservable and that a stream of information inferring the quality of the efforts exists. Our sharing rule is developed by selecting multi-period excess returns as available information and maximizing the expected utility of the policyholder. The empirical analysis shows that the effect of multi-period excess returns on insurers’ sharing patterns is consistent with the theoretical findings.

Keywords: Interest-sensitive insurance; Sharing rule; Principal–agent problem (search for similar items in EconPapers)
JEL-codes: D22 D82 G22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000366

DOI: 10.1016/j.najef.2024.102111

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