Long-Term Stability of a Life Insurer's Balance Sheet
34 Pages Posted: 27 Oct 2020 Last revised: 23 Mar 2021
Date Written: September 1, 2020
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: Suggested Citation