Fair Valuation and Risk Assessment of Dynamic Hybrid Products in Life Insurance A Portfolio Consideration
Journal
The Geneva Papers on Risk and Insurance - Issues and Practice
ISSN
1018-5895
Type
journal article
Date Issued
2014
Author(s)
Bohnert, Alexander
Abstract
Dynamic hybrid products are innovative life insurance products particularly offered in the
German market and intended to meet new consumer needs regarding stability and upside
potential. These products are characterised by a periodical rebalancing process between
the policy reserves (i.e. the premium reserve stock), a guarantee fund and an equity fund.
The policy reserve thereby corresponds to the one also valid for traditional participating
life insurance products. Hence, funds of dynamic hybrids that are allocated to the policy
reserves in times of adverse capital market environments earn the same policy interest rate
determined for the participating life insurance policyholders and, hence, at least a guaranteed
interest rate. In this paper, we study the fair valuation and risk situation of an insurer
offering both dynamic hybrid and traditional participating life insurance contracts. The
results reveal considerable interaction effects between the two contract types within the
portfolio that strongly depend on the portfolio composition, thereby emphasising merits as
well as risks associated with offering dynamic hybrids.
German market and intended to meet new consumer needs regarding stability and upside
potential. These products are characterised by a periodical rebalancing process between
the policy reserves (i.e. the premium reserve stock), a guarantee fund and an equity fund.
The policy reserve thereby corresponds to the one also valid for traditional participating
life insurance products. Hence, funds of dynamic hybrids that are allocated to the policy
reserves in times of adverse capital market environments earn the same policy interest rate
determined for the participating life insurance policyholders and, hence, at least a guaranteed
interest rate. In this paper, we study the fair valuation and risk situation of an insurer
offering both dynamic hybrid and traditional participating life insurance contracts. The
results reveal considerable interaction effects between the two contract types within the
portfolio that strongly depend on the portfolio composition, thereby emphasising merits as
well as risks associated with offering dynamic hybrids.
Language
English
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Palgrave Journals
Volume
39
Number
1
Start page
148
End page
172
Pages
25
Subject(s)
Division(s)
Eprints ID
255495