European Actuarial Journal

, Volume 7, Issue 1, pp 29–50 | Cite as

Runoff or redesign? Alternative guarantees and new business strategies for participating life insurance

Original Research Paper


Portfolios of traditional participating life insurance contracts with year-to-year (cliquet-style) guarantees are under pressure in the current situation of persistently low interest rates when valued in a market consistent valuation framework. For a portfolio with a fixed technical interest rate it has been shown in Reuß et al. (Innov Quant Risk Manag 99:185–208, 2015) that product designs with alternative guarantees are able to reduce the insurers risk and increase capital efficiency. The objective of this paper is to analyze interactions between new contracts and an existing book of insurance contracts. We consider an insurer that has built up a portfolio in the past under changing guaranteed interest rates and market conditions. Then, we analyze different new business strategies for this insurer and the resulting risk exposure and capital requirement. We show that—if all contracts are covered by the same pool of assets—switching to carefully designed participating contracts with alternative guarantees is typically preferable to a runoff scenario and can substantially reduce financial risk in future years.


Participating life insurance Interest rate guarantees Capital efficiency Portfolio mix New business strategy Solvency II Solvency capital requirements ORSA 


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Copyright information

© EAJ Association 2016

Authors and Affiliations

  1. 1.Ulm University and Institut für Finanz- und Aktuarwissenschaften (ifa)UlmGermany

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