A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts

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Version: Author's accepted manuscript
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Serval ID
serval:BIB_6FF2CC1EBFC6
Type
Article: article from journal or magazin.
Collection
Publications
Title
A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts
Journal
Journal of Risk and Insurance
Author(s)
Schmeiser H., Wagner J.
ISSN
0022-4367
Publication state
Published
Issued date
2015
Peer-reviewed
Oui
Volume
82
Number
3
Pages
659-686
Language
english
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 often 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.
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06/07/2014 9:38
Last modification date
28/09/2020 10:52
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