Innovative Equity-Linked Life Insurance Based on Traditional Products: The Case of Select-Products

Alexandrova, Maria; Bohnert, Alexander; Gatzert, Nadine; Ruß, Jochen

doi:10.2139/ssrn.2586746

Cited by 3 publications

(3 citation statements)

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“…where N is the number of scenarios, X t pnq denotes the insurer's profit/loss in year t in scenario n, B t pnq is the value of the bank account after t years in scenario n, and hence PVFP pnq is the present value of future profits in scenario n. The PVFP for the traditional product in our base case scenario is given by 3.62% (as a percentage of the present value of future premium income) using p " 90% (which is the minimum profit participation 16 As in Reuß et al [13], we apply an antithetic path selection of the random numbers in order to reduce variance in the sample, cf. e.g., Glasserman [27].…”

Section: Analysis Of the Insurer's Profitmentioning

confidence: 99%

“…In these products, as a compensation for the lower and weaker guarantee, the policyholders may choose annually to invest their surplus distribution in some equity option generating an annual return on the policy that depends on some equity index, cf. Alexandrova et al [16]. 18 The concept of PVFP is introduced as part of the MCEV Principles in the CFO-Forum [28].…”

Section: Analysis Of the Insurer's Profitmentioning

confidence: 99%

“…1 For example, Zurich Deutscher Herold Lebensversicherung stopped new business in participating life insurance in 2013, and now offers so-called "select products" (cf. Alexandrova et al [16]). Generali Deutschland announced in a press release in May 2015 their target to discontinue participating life insurance and focus on offering unit-linked insurance.…”

Section: Introductionmentioning

confidence: 99%

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

Reuß¹,

Ruß²,

Wieland³

2016

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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.

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Section: Analysis Of the Insurer's Profitmentioning

confidence: 99%

Section: Analysis Of the Insurer's Profitmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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