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A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts
Journal
Journal of Risk and Insurance
ISSN
0022-4367
Type
journal article
Date Issued
2015-02-20
Author(s)
Abstract
We consider a contingent claim model framework for participating life insurance contracts and assume a competitive market with minimum solvency requirements as provided by Solvency II. In a first step, the implications of the regulator's imposing a particular interest rate guarantee on the insurer's asset allocation are analyzed in a reference situation. We study the sensitivity of the interaction between the interest rate guarantee and the asset allocation when the risk-free interest rate changes. Particular attention is paid to the current market situation where the guaranteed interest rate is very close to the risk-free interest rate. In a second step, we assess at what level the interest rate guarantee should be set by the regulator in order to maximize policyholders' utility. We show that the results yielded by the proposed concept to derive an optimal value for the interest rate guarantee are very stable for various model parameters.
Language
English
Keywords
participating life insurance · interest rate guarantee · solvency regulation · risk-neutral valuation · utility measure
HSG Classification
contribution to scientific community
HSG Profile Area
SoM - Responsible Corporate Competitiveness (RoCC)
Refereed
Yes
Publisher
Blackwell
Volume
82
Number
3
Start page
659
End page
686
Subject(s)
Division(s)
Additional Information
Prof. Wagner is Professor at the HEC Lausanne; http://people.unil.ch/joelwagner; joel.wagner@unil.ch
Eprints ID
212602