Long-Term Stability of a Life Insurer's Balance Sheet

34 Pages Posted: 27 Oct 2020 Last revised: 23 Mar 2021

See all articles by Maximilian Diehl

Maximilian Diehl

Technische Universität Kaiserslautern

Roman Horsky

Das Fraunhofer-Institut für Techno- und Wirtschaftsmathematik ITWM

Susanne Reetz

Fraunhofer ITWM

Jörn Sass

University of Kaiserslautern - Department of Mathematics

Date Written: September 1, 2020

Abstract

In this paper, we devise a stochastic asset-liability management (ALM) model for life insurance companies and analyze its influence on the balance sheet. In particular, a flexible procedure for the generation of insurers' compressed contract portfolios that respects the given biometric structure is presented, extending the existing literature on stochastic ALM modeling. We further focus on the incorporation of new business, i.e. the addition of newly concluded contracts and thus of insured in each period. Efficient simulations are retained by integrating new contracts into existing cohorts. We provide new results on the consistency of the balance sheet equations. In simulation studies, we utilize these to analyze the long-term behavior and the stability of the components of the balance sheet for different asset-liability approaches.

Keywords: balance sheet, life insurance, model points, asset liability management, guaranteed interest rate

JEL Classification: C15; C63; G22; G32

Suggested Citation

Diehl, Maximilian and Horsky, Roman and Reetz, Susanne and Sass, Jörn, Long-Term Stability of a Life Insurer's Balance Sheet (September 1, 2020). Available at SSRN: https://ssrn.com/abstract=3690251 or http://dx.doi.org/10.2139/ssrn.3690251

Maximilian Diehl

Technische Universität Kaiserslautern ( email )

Gottlieb-Daimler-Straße 47
Kaiserslautern, DE 67663

Roman Horsky

Das Fraunhofer-Institut für Techno- und Wirtschaftsmathematik ITWM ( email )

Fraunhofer-Platz 1
Kaiserslautern, 67663
Germany

Susanne Reetz

Fraunhofer ITWM ( email )

Fraunhofer-Platz 1
Kaiserslautern, 67663
Germany

Jörn Sass (Contact Author)

University of Kaiserslautern - Department of Mathematics ( email )

D-67653 Kaiserslautern
Germany

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