Safety Margins for Systematic Biometric and Financial Risk in a Semi-Markov Life Insurance Framework

Andreas Niemeyer
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Andreas Niemeyer: Institut für Versicherungswissenschaften, Universität Ulm, D-89069 Ulm, Germany

Risks, 2015, vol. 3, issue 1, 1-26

Abstract: Insurance companies use conservative first order valuation bases to calculate insurance premiums and reserves. These valuation bases have a significant impact on the insurer’s solvency and on the premiums of the insurance products. Safety margins for systematic biometric and financial risk are in practice typically chosen as time-constant percentages on top of the best estimate transition intensities. We develop a risk-oriented method for the allocation of a total safety margin to the single safety margins at each point in time and each state. In a case study, we demonstrate the suitability of the proposed method in different frameworks. The results show that the traditional method yields an unwanted variability of the safety level with respect to time, whereas the variability can be significantly reduced by the new method. Furthermore, the case study supports the German 60 percent rule for the technical interest rate.

Keywords: safety margin; first order basis; systematic biometric risk; financial risk; semi-Markov multi-state model; risk decomposition (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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