Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-24T02:55:32.292Z Has data issue: false hasContentIssue false
  • English
  • Français

Market Based Tools for Managing the Life Insurance Company

Published online by Cambridge University Press:  17 April 2015

Massimo De Felice  and
Franco Moriconi
Massimo De Felice
Affiliation:
Dipartimento di Scienze Attuariali e Finanziarie, Università di Roma “La Sapienza”, via Nomentana, 41 00161 Roma, Italy, E-mail: [email protected]
Franco Moriconi
Affiliation:
Dipartimento di Economia – Facoltà di Economia, Università di Perugia, via A. Pascoli, 1 06100 Perugia, Italy, E-mail: [email protected], fax: +39 (0)75 585 5221
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

In this paper we present an approach to market based valuation of life insurance policies, in the spirit of the NUMAT proposed by Hans Bühlmann (2002) in an editorial in the ASTIN Bulletin. We have experienced the valuation method for more than one decade, both as a pricing procedure applied to policy portfolios of leading insurance companies, and by including the valuation principles into several actuarial teaching activities.

Our interest is mainly focused here on participating policies that in Italy are characterized by contractually binding profit sharing rules. The problem of the fair valuation of the liabilities generated to the insurer by these contracts can be conveniently addressed using the methods of contingent claims pricing. These allow to price correctly the options embedded into the policies and to implement consistent plans of asset-liability management. The approach also provides a market based measurement of the value of business in force for outstanding policy portfolios and consistent assessments of the financial risk based capitals.

Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 35 , Issue 1 , May 2005 , pp. 79 - 111
Copyright
Copyright © ASTIN Bulletin 2005

References

Aase, K.K. and Persson, S.-A. (1994) Pricing of Unit-linked Life Insurance Policies. Scandinavian Actuarial Journal, 1, 26–52.CrossRefGoogle Scholar
Aase, K.K. and Persson, S.-A. (2003) New Econ for Life Actuaries. ASTIN Bulletin, 33(2), 117–122.CrossRefGoogle Scholar
Bacinello, A.R. (2001) Fair Pricing of Life Insurance Participating Policies with a Minimum Interest Rate Guaranteed. ASTIN Bulletin, 31(2), 275–297.CrossRefGoogle Scholar
Bacinello, A.R. and Ortu, F. (1993) Pricing equity-linked life insurance with endogenous minimum guarantees. Insurance: Mathematics and Economics, 12, 245–257.Google Scholar
Baumgartner, G., Bühlmann, H. and Koller, M. (2004) Multidimensional valuation of life insurance policies and fair value. Mitteilungen der Vereinigung Schweizerischer Versicherungsmathematiker, to appear.Google Scholar
Boyle, P.P. (1978) Imunization under Stochastic Models of the Term Structure. Journal of the Institute of Actuaries, 105.Google Scholar
Boyle, P.P. and Hardy, M.R. (1997) Reserving for maturity guarantees: Two approaches. Insurance: Mathematics and Economics, 12, 245–257.Google Scholar
Boyle, P.P. and Schwartz, E.S. (1977) Equilibrium prices of guarantees under equity-linked contracts. Journal of Risk and Insurance, 44, 639–660.CrossRefGoogle Scholar
Brennan, M.J. and Schwartz, E.S. (1976) The pricing of equity-linked life insurance policies with an asset value guarantee. Journal of Financial Economics, 3, 195–213.CrossRefGoogle Scholar
Bühlmann, H. (1995) Life Insurance with Stochastic Interest Rates. In Financial Risk in Insurance (ed. Ottaviani, G.), 1–24, Springer, Berlin.Google Scholar
Bühlmann, H. (2002) New Math for Life Actuaries. ASTIN Bulletin, 32(2), 209–211.CrossRefGoogle Scholar
Bühlmann, H. (2003a), Comment on the Discussion Article by Aase and Persson. ASTIN Bulletin, 33(2), 123–124.CrossRefGoogle Scholar
Bühlmann, H. (2003b) On Teaching Actuarial Science British Actuarial Journal, 9, III.CrossRefGoogle Scholar
CAS Task Force (2000) White paper on fair valuing property/casualty insurance liabilities, Casualty Actuarial Society.Google Scholar
Castellani, G., De Felice, M. and Moriconi, F. (1992) Asset-Liability Management. Semi-deterministic and Stochastic Approach. Transactions of the 24rd International Congress of Actuaries, Montreal, Canada.Google Scholar
Cox, J.C., Ingersoll, J.E. and Ross, S.A. (1985) A Theory of the Term Structure of Interest Rates. Econometrica, 53, 385–406.CrossRefGoogle Scholar
De Felice, M. and Moriconi, F. (2002a) Finanza dell’assicurazione sulla vita. Principî per l’asset-liability management e per la misurazione dell’embedded value. Giornale dell’Istituto Italiano degli Attuari, LXV, 13–89.Google Scholar
De Felice, M. and Moriconi, F. (2002b) A Course on Finance of insurance. Groupe Consultatif Actuariel Europeen – Summer School 2002, Milano; reprinted on the websites www.GCActuaries.org/events.html, www.italian-actuaries.org/gruppoconsultivo.htm. Google Scholar
De Felice, M. and Moriconi, F. (2003), Risk Based Capital in P&C Loss Reserving or Stressing the Triangle. Working Paper n. 1, Research Group on “Insurance Companies and Pension Funds. Valuation Models and Asset-Liability Management”, March.Google Scholar
De Felice, M., Moriconi, F. and Salvemini, M.T. (1993), Italian treasury credit certificates (CCTs): theory, practice, and quirks. BNL Quarterly Review, 185, 127–168.Google Scholar
Delbaen, F. (1990) Equity-linked policies. Bulletin Association Royal Actuaries Belges, 33–52.Google Scholar
Duffie, D. (1992) Dynamic Asset Pricing Theory. Princeton University Press, Princeton, NJ, USA.Google Scholar
Dybvig, P.H. and Ross, S.A. (1987) Arbitrage. In The New Palgrave. A Dictionary of Economics (eds. Eatwell, J., Milgate, M. and Newman, P.), Macmillan, London.Google Scholar
Feller, W. (1951) Two Singular Diffusion Problems. Annals of Mathematics, 54, 173–182.CrossRefGoogle Scholar
Grosen, A. and Jørgensen, P.L. (1997) Valuation of Early Exercisable Interest Rate Guarantees. The Journal of Risk and Insurance, 64(3), 481–503.CrossRefGoogle Scholar
Grosen, A. and Jørgensen, P.L. (2000) Fair valuation of life insurance liabilities: the impact of interest rate guarantees, surrender options and bonus policies. Insurance: Mathematics and Economics, 26, 37–57.Google Scholar
Jensen, B., Jørgensen, P.L. and Grosen, A. (2001) A Finite Difference Approach to the Valuation of Path Dependent Life Insurance Liabilities. Geneva Papers on Risk and Insurance Theory, 26, 57–84.CrossRefGoogle Scholar
Karlin, S. and Taylor, H.M. (1981) A Second Course in Stochastic Processes. Academic Press, New York.Google Scholar
Le Roy, S.F. (1987) Present value. In The New Palgrave. A Dictionary of Economics (eds. Eatwell, J., Milgate, M. and Newman, P.), Macmillan, London.Google Scholar
Miltersen, K.R. and Persson, S.-A. (1999) Pricing rate of return guarantees in a Heath-Jarrow-Morton framework. Insurance: Mathematics and Economics, 25, 307–325.Google Scholar
Miltersen, K.R. and Persson, S.-A. (2003) Guaranteed Investment Contracts: Distributed and Undistributed Excess Return. Scandinavian Actuarial Journal, 4, 257–279.CrossRefGoogle Scholar
Morgan Stanley (2002) Revolution. Equity Research, January 31.Google Scholar
Moriconi, F. (1994) Un modello stocastico bivariato per tassi di interesse nominali e reali. Working Paper n. 16, Research Group on “Modelli per la finanza matematica”.Google Scholar
Moriconi, F. (1995) Analyzing Default-Free Bond Markets by Diffusion Models. In Financial Risk in Insurance (ed. Ottaviani, G.), 23–46, Springer, Berlin.Google Scholar
Norberg, R. (1999) A theory of bonus in life insurance. Finance and Stochastics, 3(4), 373–390.CrossRefGoogle Scholar
Pacati, C. (2003), Financial Valuation of a New Generation Participating Life-Insurance Contract. Proceedings of the VI Spanish-Italian Meeting on Financial Mathematics, Trieste, July 3–5.Google Scholar
Perold, A.F. and Sharpe, W.F. (1988) Dynamic Strategies for Asset Allocation. Financial Analysts Journal, 44, 16–27.CrossRefGoogle Scholar
Persson, S.-A. and Aase, K.K. (1997) Valuation of Minimum Guaranteed Returns Embedded in Life Insurance Products. The Journal of Risk and Insurance, 64(4), 599–617.CrossRefGoogle Scholar
Venter, G.G. (1991) Premium calculation implications of reinsurance without arbitrage. ASTIN Bulletin, 21, 223–230.CrossRefGoogle Scholar
Wang, S.S. (1996) Premium calculation by transforming the layer premium density. ASTIN Bulletin, 26, 213–234.CrossRefGoogle Scholar
Wang, S.S. (2000) A class of distortion operators for pricing financial and insurance risks. Journal of Risk and Insurance, 67, 15–36.CrossRefGoogle Scholar
Wang, S.S. (2002) A universal framework for pricing financial and insurance risks, ASTIN Bulletin, 32, 71–92.CrossRefGoogle Scholar