On the Market-Consistent Valuation of Participating Life Insurance Heterogeneous Contracts under Longevity Risk
Risks 9, no. 1: 20. https://doi.org/10.3390/risks9010020
18 Pages Posted: 12 Mar 2021
Date Written: 2020
The purpose of this paper is to conduct a market-consistent valuation of life insurance participating liabilities sold to a population of partially heterogeneous customers under the joint impact of biometric and financial risk. In particular, the heterogeneity between groups of policyholders stems from their offered minimum interest rate guarantees and contract maturities. We analyze the effects of these features on the company's insolvency while embracing the insurer's goal to achieve the same expected return for different cohorts of policyholders. Within our extensive numerical analyses, we determine the fair participation rates and other key figures, and discuss the implications for the stakeholders, taking account of various degrees of conservativeness of the insurer when pricing the contracts.
Keywords: participating life insurance, heterogeneous policyholders, market-consistent valuation, longevity risk, fair contract analysis
JEL Classification: G13, G22
Suggested Citation: Suggested Citation