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On the Market-Consistent Valuation of Participating Life Insurance Heterogeneous Contracts under Longevity Risk

Millossovich, P. ORCID: 0000-0001-8269-7507, Bacinello, A. R., Chen, A. and Sehner, T. (2021). On the Market-Consistent Valuation of Participating Life Insurance Heterogeneous Contracts under Longevity Risk. Risks,

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
Publisher Keywords: Participating life insurance; Heterogeneous policyholders; Market-consistent valuation; Longevity risk; Fair contract analysis
Subjects: H Social Sciences > HG Finance
Departments: Business School > Actuarial Science & Insurance
Date Deposited: 11 Jan 2021 15:34
URI: https://openaccess.city.ac.uk/id/eprint/25497
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Available under License Creative Commons: Attribution International Public License 4.0.

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