Statutory financial reporting for variable annuity guaranteed death benefits: Market practice, mathematical modeling and computation

Runhuan Feng and Huaxiong Huang

Insurance: Mathematics and Economics, 2016, vol. 67, issue C, 54-64

Abstract: As more regulatory reporting requirements for equity-linked insurance move towards dependence on stochastic approaches, insurance companies are experiencing increasing difficulty with detailed forecasting and more accurate risk assessment based on Monte Carlo simulations. While there is vast literature on pricing and valuations of various equity-linked insurance products, very few have focused on the challenges of financial reporting for regulatory requirement and internal risk management. Most insurers use either simulation-based spreadsheet calculations or employ third-party vendor software packages. We intend to use a basic variable annuity death benefit as a model example to decipher the common mathematical structure of US statutory financial reporting. We shall demonstrate that alternative deterministic algorithms such as partial differential equation (PDE) methods can also be used in financial reporting, and that a fully quantified model allows us to compare alternatives of risk metrics for financial reporting.

Keywords: Guaranteed minimum death benefit; Risk measures; Statutory financial reporting; Individual model; Aggregate model; Numerical PDE methods; Running supremum (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:67:y:2016:i:c:p:54-64

DOI: 10.1016/j.insmatheco.2015.12.001

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