Analyzing surplus appropriation schemes in participating life insurance from the insurer’s and the policyholder’s perspective

Bohnert, Alexander; Gatzert, Nadine

doi:10.1016/j.insmatheco.2011.09.004

Cited by 23 publications

(24 citation statements)

References 27 publications

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“…More specifically, we look for a θ 3 , such that we get zero when approximating the time 0 market value W (0) from Equation (11). We recall that W is the market value of the guaranteed and non-guaranteed payments.…”

Section: One-policy Portfoliomentioning

confidence: 99%

“…The existing literature considers the valuation of guaranteed and non-guaranteed payments in participating life insurance or unit-linked insurance without event risk, whereas a common framework and inclusion of event risk are rare. The papers [8][9][10][11] are examples of recent literature that considers valuation in participating life insurance without (or with very limited) event risk. The papers [12][13][14] are other examples within the same area, but their focus is more risk-related.…”

Section: Introductionmentioning

confidence: 99%

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A Two-Account Life Insurance Model for Scenario-Based Valuation Including Event Risk

Jensen

Schomacker²

2015

Risks

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Using a two-account model with event risk, we model life insurance contracts taking into account both guaranteed and non-guaranteed payments in participating life insurance as well as in unit-linked insurance. Here, event risk is used as a generic term for life insurance events, such as death, disability, etc. In our treatment of participating life insurance, we have special focus on the bonus schemes "consolidation" and "additional benefits", and one goal is to formalize how these work and interact. Another goal is to describe similarities and differences between participating life insurance and unit-linked insurance. By use of a two-account model, we are able to illustrate general concepts without making the model too abstract. To allow for complicated financial markets without dramatically increasing the mathematical complexity, we focus on economic scenarios. We illustrate the use of our model by conducting scenario analysis based on Monte Carlo simulation, but the model applies to scenarios in general and to worst-case and best-estimate scenarios in particular. In addition to easy computations, our model offers a common framework for the valuation of life insurance payments across product types. This enables comparison of participating life insurance products and unit-linked insurance products, thus building a bridge between the two different ways of formalizing life insurance products. Finally, our model distinguishes itself from the existing literature by taking into account the Markov model for the state of the policyholder and, hereby, facilitating event risk.

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Section: One-policy Portfoliomentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

A Two-Account Life Insurance Model for Scenario-Based Valuation Including Event Risk

Jensen

Schomacker²

2015

Risks

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“…Bohnert and Gatzert (2012) for studies regarding different surplus appropriation schemes and their impact on an insurer's risk situation).…”

Section: Development Of Liabilitiesmentioning

confidence: 99%

Fair Valuation and Risk Assessment of Dynamic Hybrid Products in Life Insurance: A Portfolio Consideration

Bohnert

Gatzert

2014

Geneva Pap Risk Insur Issues Pract

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Dynamic hybrid products are innovative life insurance products particularly offered in the German market and intended to meet new consumer needs regarding stability and upside potential. These products are characterised by a periodical rebalancing process between the policy reserves (i.e. the premium reserve stock), a guarantee fund and an equity fund. The policy reserve thereby corresponds to the one also valid for traditional participating life insurance products. Hence, funds of dynamic hybrids that are allocated to the policy reserves in times of adverse capital market environments earn the same policy interest rate determined for the participating life insurance policyholders and, hence, at least a guaranteed interest rate. In this paper, we study the fair valuation and risk situation of an insurer offering both dynamic hybrid and traditional participating life insurance contracts. The results reveal considerable interaction effects between the two contract types within the portfolio that strongly depend on the portfolio composition, thereby emphasising merits as well as risks associated with offering dynamic hybrids.

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“…They find that their proposed plan increases the risk tolerance and the expected utility of the retirement benefits. Analyses of different surplus appropriation schemes in participating policies are provided by Bohnert and Gatzert [17] and Zemp [18].…”

Section: Introductionmentioning

confidence: 99%

A Discussion of a Risk-Sharing Pension Plan

Donnelly

2017

Risks

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I show that risk-sharing pension plans can reduce some of the shortcomings of defined benefit and defined contributions plans. The risk-sharing pension plan presented aims to improve the stability of benefits paid to generations of members, while allowing them to enjoy the expected advantages of a risky investment strategy. The plan does this by adjusting the investment strategy and benefits in response to a changing funding level, motivated by the with-profits contract proposed by Goecke (2013). He suggests a mean-reverting log reserve (or funding) ratio, where mean reversion occurs through adjustments to the investment strategy and declared bonuses. To measure the robustness of the plan to human factors, I introduce a measurement of disappointment, where disappointment is high when there are many consecutive years over which benefit payments are declining. Another measure introduced is devastation, where devastation occurs when benefit payments are zero. The motivation is that members of a pension plan who are easily disappointed or likely to get no benefit, are more likely to exit the plan. I find that the risk-sharing plan offers more disappointment than a defined contribution plan, but it eliminates the devastation possible in a plan that tries to accumulate contributions at a steadily increasing rate. The proposed risk-sharing plan can give a narrower range of benefits than in a defined contribution plan. Thus it can offer a stable benefit to members without the risk of running out of money.

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Analyzing surplus appropriation schemes in participating life insurance from the insurer’s and the policyholder’s perspective

Cited by 23 publications

References 27 publications

A Two-Account Life Insurance Model for Scenario-Based Valuation Including Event Risk

A Two-Account Life Insurance Model for Scenario-Based Valuation Including Event Risk

Fair Valuation and Risk Assessment of Dynamic Hybrid Products in Life Insurance: A Portfolio Consideration

A Discussion of a Risk-Sharing Pension Plan

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