Abstract

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 analyse 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.

Publication Type:	Article
Additional Information:	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.
Publisher Keywords:	Participating life insurance; Heterogeneous policyholders; Market-consistent valuation; Longevity risk; Fair contract analysis
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Actuarial Science & Insurance

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