Implicit Embedded Options in Life Insurance Contracts: A by Nils Rüfenacht (auth.)

By Nils Rüfenacht (auth.)

This ebook offers a market-consistent valuation framework for implicit embedded ideas in existence coverage contracts. This framework is used to accomplish an empirical research in keeping with greater than 110,000 real and in-force existence policies and with a spotlight at the modeling of rates of interest. Its effects are the reply to the relevant query posed within the ambitions: What worth do the embedded recommendations and promises thought of have? this query is responded either completely and relative to the present coverage reserves, from the point of view of the insurer, the policyholder and the shareholder respectively

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13 implies that the bonus mechanism is indeed an embedded option. To give the reader an impression of the model’s behaviour two sample plots are in order. 2 clearly demonstrates the smoothing effect on the policy interest rate rP . The return on the reference portfolio A is quite volatile compared to rP that is more or less stable. In Fig. 3 the evolution of all relevant accounts modelled are plotted. Again it is a sample simulation with arbitrary set parameters but anyhow contains a lot of information on the model.

Before starting, some delimitation are in order. Any kind of embedded option or guarantee is always linked to a particular life insurance contract. Within this thesis, neither non-life nor reinsurance business will be considered. Furthermore, only financial options and financial guarantees are taken into account. Roughly speaking a life insurance is merely an umbrella term for any kind of insurance contract where the benefit is linked to the policyholder’s life and risks as survival and death are covered.

The ratio B=P shall be the measure for the solvency ratio as mentioned above. 13 To describe their statistical model a slightly modified version of the base formula is taken. 14) where the subscript i; i 2 f1; 2; : : : 6g indexes the different companies considered. 14 As explained the available data consists of a time series i for each i . 16) and ˛0i D 12 ˛1i i ; 13 See Grosen andnJørgensen (2002b). t 1/ ˇ 14 See the respective explanations in Grosen and Jørgensen (2002b). 17) 32 2 Theoretical Considerations Regarding Embedded Options their statistical model corresponding to Eq.

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