On technical bases and surplus in life insurance

Oytun Haçarız, Torsten Kleinow and Angus S. Macdonald

Scandinavian Actuarial Journal, 2024, vol. 2024, issue 9, 881-909

Abstract: We revisit surplus on general life insurance contracts, represented by Markov models. We classify technical bases in terms of boundary conditions in Thiele's equation(s), allowing more general regulations than Scandinavian-style ‘first-order/second-order’ regimes, and replacing the traditional retrospective policy value. We propose a ‘canonical’ model with three technical bases (premium, valuation, accumulation) and show how each pair of bases defines premium loadings and surplus. Along with a ‘true’ or ‘real-world’ experience basis, this expands fundamental results of Ramlau-Hansen [(1988b). The emergence of profit in life insurance. Insurance: Mathematics and Economics, 7(4), 225–236]. We conclude with two applications: lapse-supported business; and the retrospectively-oriented regime proposed by Møller and Steffensen [(2007). Market-valuation methods in life and pension insurance. Cambridge University Press].

Date: 2024
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DOI: 10.1080/03461238.2024.2363183

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