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Risks 2015, 3(1), 35-60; doi:10.3390/risks3010035

Safety Margins for Systematic Biometric and Financial Risk in a Semi-Markov Life Insurance Framework

Institut für Versicherungswissenschaften, Universität Ulm, D-89069 Ulm, Germany
Academic Editor: Nadine Gatzert
Received: 9 November 2014 / Accepted: 8 January 2015 / Published: 19 January 2015
(This article belongs to the Special Issue Life Insurance and Pensions)
View Full-Text   |   Download PDF [1325 KB, uploaded 19 January 2015]   |  

Abstract

Insurance companies use conservative first order valuation bases to calculate insurance premiums and reserves. These valuation bases have a significant impact on the insurer’s solvency and on the premiums of the insurance products. Safety margins for systematic biometric and financial risk are in practice typically chosen as time-constant percentages on top of the best estimate transition intensities. We develop a risk-oriented method for the allocation of a total safety margin to the single safety margins at each point in time and each state. In a case study, we demonstrate the suitability of the proposed method in different frameworks. The results show that the traditional method yields an unwanted variability of the safety level with respect to time, whereas the variability can be significantly reduced by the new method. Furthermore, the case study supports the German 60 percent rule for the technical interest rate. View Full-Text
Keywords: safety margin; first order basis; systematic biometric risk; financial risk; semi-Markov multi-state model; risk decomposition safety margin; first order basis; systematic biometric risk; financial risk; semi-Markov multi-state model; risk decomposition
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Niemeyer, A. Safety Margins for Systematic Biometric and Financial Risk in a Semi-Markov Life Insurance Framework. Risks 2015, 3, 35-60.

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