The Effect of Secondary Markets on Equity‐Linked Life Insurance with Surrender Guarantees

26 Pages Posted: 25 Nov 2014

See all articles by Christian Hilpert

Christian Hilpert

Sun Yat-Sen University (SYSU) - Lingnan (University) College

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration

Jing Li

Institute for Finanancial Economics and Statistics

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Date Written: December 2014

Abstract

Many equity‐linked life insurance products offer the possibility to surrender policies prematurely. Secondary markets for policies with surrender guarantees influence both policyholders and insurers. We show that secondary markets lead to a gap in policy value between insurer and policyholder. Insurers increase premiums to adjust for higher surrender rates of customers and optimized surrender behavior by investors acquiring the policies on secondary markets. Hence, the existence of secondary markets is not necessarily profitable for the primary policyholders. The result depends on the demand for and the supply of the contracts brought to the secondary markets.

Suggested Citation

Hilpert, Christian and Szimayer, Alexander and Li, Jing, The Effect of Secondary Markets on Equity‐Linked Life Insurance with Surrender Guarantees (December 2014). Journal of Risk and Insurance, Vol. 81, Issue 4, pp. 943-968, 2014, Available at SSRN: https://ssrn.com/abstract=2530242 or http://dx.doi.org/10.1111/j.1539-6975.2013.12003.x

Christian Hilpert (Contact Author)

Sun Yat-Sen University (SYSU) - Lingnan (University) College ( email )

Guangzhou
China

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Jing Li

Institute for Finanancial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, D-53113
Germany
0049-228-736104 (Phone)

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