On the market-consistent valuation of health insurance liabilities

Simon Hochgerner, Jonas Ingmanns and Nicole Kastanek

Papers from arXiv.org

Abstract: We are concerned with the market-consistent valuation of lifelong health insurance products, which are subject to adjustments derived from the actuarial equivalence principle and driven by (medical) inflation. Such products are well-established in the European national markets, and the dynamics of the adjustment mechanism is well-understood from an actuarial perspective. However, the question of market-consistent valuation (as is necessary for Solvency II reporting) has not previously been addressed. This gap has led to a situation where some practitioners use stochastic models while others rely on deterministic methods to assign market-consistent values (Best Estimates) to the same type of health insurance liabilities. The purpose of this note is to fill this gap by showing that the Best Estimate of a lifelong health insurance policy depends on the choice of model for the interest and inflation rates. That is, the Best Estimate is not uniquely determined by the currently prevailing term structures of nominal and real spot rates, whence a deterministic calculation is theoretically unjustified. Furthermore, we construct a valuation portfolio such that the Best Estimate valuation decouples into calculations of 1.) deterministic coefficients derived from policy data and 2.) the prices of basis financial instruments that are independent of the individual policy data. Using this decomposition, the policies do not have to be tracked individually along each generated stochastic path. This allows for a more efficient evaluation of the Best Estimate for a large stock of policies with a stochastic model.

Date: 2026-04, Revised 2026-04
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2604.18243 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2604.18243

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().