Advertisement

European Actuarial Journal

, Volume 8, Issue 2, pp 291–320 | Cite as

Policy characteristics and stakeholder returns in participating life insurance: which contracts can lead to a win-win?

  • Charbel Mirza
  • Joël WagnerEmail author
Original Research Paper
  • 90 Downloads

Abstract

Participating life insurance contracts and pension plans often include a return guarantee and participation in the surplus of the institution’s result. The final account value in such contracts depends on the investment policy driven by solvency requirements, as well as on the level of market returns, the guarantee and the participation rates. Using a contingent claim model for such contracts, we assume a competitive market with minimum solvency requirements similar to Solvency II. We consider solvency requirements on maturity and 1-year time horizons, as well as contracts with single and periodic premium payments. Through numerical analyses, we link the expected returns for equity holders and policyholders in various situations. Using the return on equity and policyholder internal rate of return along with utility measures, we assess which contract settings optimize the return compromise for both stakeholders in a low-interest-rate environment. Our results extend the academic literature by building on the work by Schmeiser and Wagner (J Risk Insur 82(3):659–686, 2015) and are relevant for practitioners, given the current financial market environment and difficulties in insurance-linked savings plans with guarantees.

Keywords

Life insurance products Interest rate guarantee Policyholder participation Return on investment 

References

  1. 1.
    Baloise Group (2015) Baloise sells closed life insurance portfolio in Germany. Media information. https://www.baloise.com/en/home/media/news/2015/baloise-sells-closed-life-insurance-portfoliogermany.html. Accessed 3 May 2018
  2. 2.
    Bernard C, Le Courtois O, Quittard-Pinon F (2005) Market value of life insurance contracts under stochastic interest rates and default risk. Insur Math Econ 36(3):499–516MathSciNetCrossRefGoogle Scholar
  3. 3.
    Braun A, Fischer M, Schmeiser H (2015) How to derive optimal guarantee levels in participating life insurance contracts. IVW-HSG working paper, University of St. GallenGoogle Scholar
  4. 4.
    Braun A, Schmeiser H, Schreiber F (2018) Return on risk-adjusted capital under solvency ii: implications for the asset management of insurance companies. Geneva Pap Risk Insur Issues Pract 43(3):456–472CrossRefGoogle Scholar
  5. 5.
    Briys E, de Varenne F (1997) On the risk of insurance liabilities: debunking some common pitfalls. J Risk Insur 64(4):673–694CrossRefGoogle Scholar
  6. 6.
    Butsic RP (1994) Solvency measurement for property-liability risk-based capital applications. J Risk Insur 61(4):656–690CrossRefGoogle Scholar
  7. 7.
    Doherty N, Garven J (1986) Price regulation in property-liability insurance: a contingent-claims approach. J Fin 41(5):1031–1050CrossRefGoogle Scholar
  8. 8.
    Eling M, Holder S (2013a) Maximum technical interest rates in life insurance in europe and the united states: an overview and comparison. Geneva Pap Risk Insur Issues Pract 38(2):354–375CrossRefGoogle Scholar
  9. 9.
    Eling M, Holder S (2013b) The value of interest rate guarantees in participating life insurance contracts: status quo and alternative product design. Insur Math Econ 53(3):491–503MathSciNetCrossRefGoogle Scholar
  10. 10.
    Eling M, Gatzert N, Schmeiser H (2008) The Swiss Solvency Test and its market implications. Geneva Pap Risk Insur Issues Pract 33(3):418–439CrossRefGoogle Scholar
  11. 11.
    European Commission (2015) Commission Delegated Decision (EU) 2015/1602. Off J Eur Union L248:95–98Google Scholar
  12. 12.
    European Union (1992) Council Directive 92/96/EEC of the European Parliament and of the Council. Off J Eur Communities L360:1–27Google Scholar
  13. 13.
    European Union (2002) Directive 2002/83/EC of the European Parliament and of the Council. Off J Eur Communities L345:1–51Google Scholar
  14. 14.
    European Union (2009) Directive 2009/138/EC of the European Parliament and of the Council. Off J Eur Union L335:1–155Google Scholar
  15. 15.
    European Union (2014) Directive 2014/51/EU of the European Parliament and of the Council. Off J Eur Union L153:1–61Google Scholar
  16. 16.
    Federal Assembly of the Swiss Confederation (2004) Insurance Supervision Act (961.01). https://www.admin.ch/opc/de/classified-compilation/20022427/index.html. Accessed 3 May 2018
  17. 17.
    Gatzert N, Kling A (2007) Analysis of Participating life insurance contracts: a unification approach. J Risk Insur 74(3):547–570CrossRefGoogle Scholar
  18. 18.
    Gatzert N, Holzmüller I, Schmeiser H (2012) Creating customer value in participating life insurance. J Risk Insur 79(3):645–670CrossRefGoogle Scholar
  19. 19.
    German Federal Ministry of Justice (2014a) Verordnung über die Mindestbeitragsrückerstattung in der Lebensversicherung (MindZV)Google Scholar
  20. 20.
    German Federal Ministry of Justice (2014b) Verordnung über Rechnungsgrundlagen für die Deckungsrückstellungen (DeckRV)Google Scholar
  21. 21.
    Grosen A, Jorgensen P (2000) Fair valuation of life insurance liabilities: the impact of interest rate guarantees, surrender options, and bonus policies. Insur Math Econ 26(1):37–57CrossRefGoogle Scholar
  22. 22.
    Grosen A, Jorgensen P (2002) Life insurance liabilities at market value: an analysis of insolvency risk, bonus policy, and regulatory intervention rules in a barrier option framework. J Risk Insur 69(1):63–91CrossRefGoogle Scholar
  23. 23.
    International Association of Insurance Supervisors (2016) 2015 Global Insurance Market Report. Technical reportGoogle Scholar
  24. 24.
    Killer M (2015) Streit um BVG-Gelder—Für eine höhere Mindestquote. Neue Zürcher Zeitung 23 JanuaryGoogle Scholar
  25. 25.
    Kling A, Richter A, Ruß J (2007a) The impact of surplus distribution on the risk exposure of with profit life insurance policies including interest rate guarantees. J Risk Insur 74(3):571–589CrossRefGoogle Scholar
  26. 26.
    Kling A, Richter A, Ruß J (2007b) The interaction of guarantees, surplus distribution, and asset allocation in with-profit life insurance policies. Insur Math Econ 40(1):164–178MathSciNetCrossRefGoogle Scholar
  27. 27.
    Merton RC (1969) Lifetime portfolio selection under uncertainty: the continuous-time case. Rev Econ Stat 51(3):247–257CrossRefGoogle Scholar
  28. 28.
    Rymaszewski P, Schmeiser H, Wagner J (2012) Under what conditions is an insurance guaranty fund beneficial for policyholders? J Risk Insur 79(3):785–815CrossRefGoogle Scholar
  29. 29.
    Schmeiser H, Wagner J (2013) The impact of introducing insurance guaranty schemes on pricing and capital structure. J Risk Insur 80(2):273–308CrossRefGoogle Scholar
  30. 30.
    Schmeiser H, Wagner J (2015) A proposal on how the regulator should set minimum interest rate guarantees in participating life insurance contracts. J Risk Insur 82(3):659–686CrossRefGoogle Scholar
  31. 31.
    Schmeiser H, Wagner J (2016) What transaction costs are acceptable in life insurance products from the policyholders’ viewpoint? J Risk Fin 17(3):277–294CrossRefGoogle Scholar
  32. 32.
    Swiss Federal Council (2005) Ordinance on the Supervision of Private Insurance Companies (961.011). https://www.admin.ch/opc/de/classified-compilation/20051132/index.html. Accessed 3 May 2018

Copyright information

© EAJ Association 2018

Authors and Affiliations

  1. 1.Department of Actuarial Science, Faculty of Business and EconomicsUniversity of LausanneLausanneSwitzerland
  2. 2.Swiss Finance InstituteUniversity of LausanneLausanneSwitzerland

Personalised recommendations