On the Market-Consistent Valuation of Participating Life Insurance Heterogeneous Contracts under Longevity Risk

Anna Rita Bacinello, An Chen, Thorsten Sehner and Pietro Millossovich
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Anna Rita Bacinello: Department of Economics, Business, Mathematics and Statistics ‘B. de Finetti’, University of Trieste, Via dell’Università 1, 34100 Trieste, Italy
An Chen: Faculty of Mathematics and Economics, University of Ulm, Helmholtzstrasse 20, 89069 Ulm, Germany
Thorsten Sehner: Faculty of Mathematics and Economics, University of Ulm, Helmholtzstrasse 20, 89069 Ulm, Germany
Pietro Millossovich: Department of Economics, Business, Mathematics and Statistics ‘B. de Finetti’, University of Trieste, Via dell’Università 1, 34100 Trieste, Italy

Risks, 2021, vol. 9, issue 1, 1-18

Abstract: The purpose of this paper is to conduct a market-consistent valuation of life insurance participating liabilities sold to a population of partially heterogeneous customers under the joint impact of biometric and financial risk. In particular, the heterogeneity between groups of policyholders stems from their offered minimum interest rate guarantees and contract maturities. We analyse the effects of these features on the company’s insolvency while embracing the insurer’s goal to achieve the same expected return for different cohorts of policyholders. Within our extensive numerical analyses, we determine the fair participation rates and other key figures, and discuss the implications for the stakeholders, taking account of various degrees of conservativeness of the insurer when pricing the contracts.

Keywords: participating life insurance; heterogeneous policyholders; market-consistent valuation; longevity risk; fair contract analysis (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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