Next Article in Journal
Community Analysis of Global Financial Markets
Next Article in Special Issue
Spouses’ Dependence across Generations and Pricing Impact on Reversionary Annuities
Previous Article in Journal
Telematics and Gender Discrimination: Some Usage-Based Evidence on Whether Men’s Risk of Accidents Differs from Women’s
Previous Article in Special Issue
Premiums for Long-Term Care Insurance Packages: Sensitivity with Respect to Biometric Assumptions
Article Menu

Export Article

Open AccessFeature PaperArticle
Risks 2016, 4(2), 11; doi:10.3390/risks4020011

Participating Life Insurance Products with Alternative Guarantees: Reconciling Policyholders’ and Insurers’ Interests

Institut für Finanz- und Aktuarwissenschaften and Ulm University, Lise-Meitner-Straße 14, 89081 Ulm, Germany
*
Author to whom correspondence should be addressed.
Academic Editor: Nadine Gatzert
Received: 26 November 2015 / Revised: 18 April 2016 / Accepted: 25 April 2016 / Published: 5 May 2016
(This article belongs to the Special Issue Life Insurance and Pensions)
View Full-Text   |   Download PDF [2650 KB, uploaded 5 May 2016]   |  

Abstract

Traditional participating life insurance contracts with year-to-year (cliquet-style) guarantees have come under pressure in the current situation of low interest rates and volatile capital markets, in particular when priced in a market-consistent valuation framework. In addition, such guarantees lead to rather high capital requirements under risk-based solvency frameworks such as Solvency II or the Swiss Solvency Test (SST). Therefore, insurers in several countries have developed new forms of participating products with alternative (typically weaker and/or lower) guarantees that are less risky for the insurer. In a previous paper, it has been shown that such alternative product designs can lead to higher capital efficiency, i.e., higher and more stable profits and reduced capital requirements. As a result, the financial risk for the insurer is significantly reduced while the main guarantee features perceived and requested by the policyholder are preserved. Based on these findings, this paper now combines the insurer’s and the policyholder’s perspective by analyzing product versions that compensate policyholders for the less valuable guarantees. We particularly identify combinations of asset allocation and profit participation rate for the different product designs that lead to an identical expected profit for the insurer (and identical risk-neutral value for the policyholder), but differ with respect to the insurer’s risk and solvency capital requirements as well as with respect to the real-world return distribution for the policyholder. We show that alternative products can be designed in a way that the insurer’s expected profitability remains unchanged, the insurer’s risk and hence capital requirement is substantially reduced and the policyholder’s expected return is increased. This illustrates that such products might be able to reconcile insurers’ and policyholders’ interests and serve as an alternative to the rather risky cliquet-style products. View Full-Text
Keywords: participating life insurance; interest rate guarantees; capital efficiency; asset allocation; profit participation rate; policyholder’s expected return; solvency capital requirements; Solvency II; SST; market-consistent valuation participating life insurance; interest rate guarantees; capital efficiency; asset allocation; profit participation rate; policyholder’s expected return; solvency capital requirements; Solvency II; SST; market-consistent valuation
Figures

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).

Scifeed alert for new publications

Never miss any articles matching your research from any publisher
  • Get alerts for new papers matching your research
  • Find out the new papers from selected authors
  • Updated daily for 49'000+ journals and 6000+ publishers
  • Define your Scifeed now

SciFeed Share & Cite This Article

MDPI and ACS Style

Reuß, A.; Ruß, J.; Wieland, J. Participating Life Insurance Products with Alternative Guarantees: Reconciling Policyholders’ and Insurers’ Interests. Risks 2016, 4, 11.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top