A Model for Risk Adjustment (IFRS 17) for Surrender Risk in Life Insurance

Magnus Carlehed ()
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Magnus Carlehed: Department of Mathematics, Stockholm University, 106 91 Stockholm, Sweden

Risks, 2023, vol. 11, issue 3, 1-22

Abstract: We propose a model for risk adjustment, in the context of IFRS 17, for surrender risk. Surrender rates are assumed to follow a stochastic process, underpinned by data. The distribution of the present value of future individual cash flows is calculated. Using well-known techniques from the theory of convex ordering of stochastic variables, we present closed formula approximations of risk measures, such as quantiles, for the total portfolio. These formulas are easy to program and enable an insurance company to calculate its risk adjustment without time-consuming simulations.

Keywords: risk adjustment; IFRS 17; surrender risk; ultimo risk measure; convex ordering (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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