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The efficacy of life insurance company general account equity asset allocations: a safety-first perspective using vine copulas

Published online by Cambridge University Press:  21 January 2018

Ryan Timmer ,
John Paul Broussard  and
G. Geoffrey Booth
Ryan Timmer
Affiliation:
Jackson National Life Insurance Company, Lansing, MI 48951, USA
John Paul Broussard*
Affiliation:
School of Business – Camden, Rutgers, The State University of New Jersey, Camden, NJ 08102, USA Hanken School of Economics, Helsinki, Finland
G. Geoffrey Booth
Affiliation:
Eli Broad College of Business, Michigan State University, 355 Eppley Center, East Lansing, MI 48824, USA
*
*Correspondence to: John Paul Broussard, School of Business – Camden, Rutgers, The State University of New Jersey, Camden, NJ 08102, USA. Tel: +1 (856) 225-6647; E-mail: [email protected]
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Abstract

We study the asset allocation decision of a life insurance company’s general account with respect to the possibility of large negative economic shocks and examine how this account is affected by policyholder investment decisions in the company’s separate account. This is accomplished using a performance metric that incorporates downside risk measured using univariate and multivariate extreme value distributions. Because of its well-known price volatility, diversification attributes, and significant weight in the combined general and separate accounts, our primary focus is the company’s equity investments. Although industry asset allocations have varied over the past two decades, we find that the actual allocations to equity in the general account are close to the allocation percentages suggested by our extreme value metrics and both are far below the maximum values indicated by the relevant regulatory bodies.

Keywords

Life insuranceInvestment performanceAsset allocationDownside riskVine copulas
Type
Paper
Information
Annals of Actuarial Science , Volume 12 , Issue 2 , September 2018 , pp. 372 - 390
Copyright
© Institute and Faculty of Actuaries 2018 

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