Not Available for Download

On the Management of Life Insurance Company Risk by Strategic Choice of Product Mix, Investment Strategy and Surplus Appropriation Schemes

Posted: 26 Jul 2012 Last revised: 9 Dec 2014

Alexander Bohnert

Friedrich-Alexander University Erlangen-Nürnberg

Nadine Gatzert

Friedrich-Alexander University Erlangen-Nürnberg

Peter Løchte Jørgensen

University of Aarhus - Business and Social Sciences

Date Written: November 7, 2014

Abstract

The aim of this paper is to analyze the impact of management’s strategic choice of asset and liability composition in life insurance on shortfall risk and the shareholders’ fair risk charge. In contrast to previous work, we focus on the effectiveness of management decisions regarding the product mix and the riskiness of the asset side under different surplus appropriation schemes. We propose a model setting that comprises temporary life annuities and endowment insurance contracts. Our numerical results show that the effectiveness of management decisions in regard to risk reduction strongly depends on the surplus appropriation scheme offered to the customer and their impact on guaranteed benefit payments, which thus presents an important control variable for the insurer.

Keywords: Participating life insurance, surplus distribution, risk-neutral valuation, management mechanisms

Suggested Citation

Bohnert, Alexander and Gatzert, Nadine and Jørgensen, Peter Løchte, On the Management of Life Insurance Company Risk by Strategic Choice of Product Mix, Investment Strategy and Surplus Appropriation Schemes (November 7, 2014). Insurance: Mathematics and Economics, Vol. 60, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=2116953 or http://dx.doi.org/10.2139/ssrn.2116953

Alexander Bohnert (Contact Author)

Friedrich-Alexander University Erlangen-Nürnberg ( email )

Lange Gasse 20
Nuremberg, 90403
Germany
+499115302417 (Phone)
+499115302888 (Fax)

HOME PAGE: http://www.vwrm.rw.fau.de

Nadine Gatzert

Friedrich-Alexander University Erlangen-Nürnberg ( email )

Lange Gasse 20
Nuremberg, 90403
Germany
+499115302884 (Phone)
+499115302888 (Fax)

HOME PAGE: http://www.vwrm.rw.fau.de

Peter Løchte Jørgensen

University of Aarhus - Business and Social Sciences ( email )

Finance Research Group
Fuglesangs Allé 4
DK-8210 Aarhus, 8210
Denmark
+4587165117 (Phone)

HOME PAGE: http://pure.au.dk/portal/en/plj@econ.au.dk

Paper statistics

Abstract Views
910