Longevity impact on life insurers in low interest rate environment

This paper aims at shedding some light on the interplay between two key risk factors affecting most life insurance products, namely biometric and investment risk. We enhance the pioneering model by Briys and de Varenne, featuring a stylized participating life insurance company by explicitly tying benefits to the survivorship of a cohort of policyholders. In particular, we allow for the two main components of biometric risk, that is systematic (longevity) risk and diversifiable (process) risk

The valuation of GMWB variable annuities under alternative fund distributions and policyholder behaviours

In this paper, we present a dynamic programming algorithm for pricing variable annuities with Guaranteed Minimum Withdrawal Benefits (GMWB) under a general Lévy processes framework. The GMWB gives the policyholder the right to make periodical withdrawals from her policy account even when the value of this account is exhausted. Typically, the total amount guaranteed for withdrawals coincides with her initial investment, providing then a protection against downside market risk. At each withdrawal date, the policyholder has to decide whether, and how much, to withdraw, or to surrender the contract. We show how different policyholder’s withdrawal behaviours can be modelled. We perform a sensitivity analysis comparing the numerical results obtained for different contractual and market parameters, policyholder behaviours and different types of Lévy processes

On the Market-Consistent Valuation of Participating Life Insurance Heterogeneous Contracts under Longevity Risk

The purpose of this paper is to conduct a market-consistent valuation of life insurance participating liabilities sold to a population of partially heterogeneous customers under the joint impact of biometric and financial risk. In particular, the heterogeneity between groups of policyholders stems from their offered minimum interest rate guarantees and contract maturities. We analyse the effects of these features on the company’s insolvency while embracing the insurer’s goal to achieve the same expected return for different cohorts of policyholders. Within our extensive numerical analyses, we determine the fair participation rates and other key figures, and discuss the implications for the stakeholders, taking account of various degrees of conservativeness of the insurer when pricing the contracts

Variable Annuities: A Unifying Valuation Approach

Life annuities and pension products usually involve a number of guarantees, such as minimum accumulation rates, minimum annual payments or a minimum total payout. Packaging different types of guarantees is the feature of so-called variable annuities. Basically, these products are unit-linked investment policies providing a post-retirement income. The guarantees, commonly referred to as GMxBs (namely, Guaranteed Minimum Benefits of type \u2018x\u2019), include minimum benefits both in the case of death and survival. In this paper we propose a unifying framework for the valuation of variable annuities under quite general model assumptions. We compute and compare contract values and fair fee rates under \u2018static\u2019 and \u2018mixed\u2019 valuation approaches, via ordinary and least squares Monte Carlo methods, respectively

"Valuation of Sinking-Fund Bonds in the Vasicek and CIR Frameworks"

We price sinkind fund bonds with a delivery option using alternatively the Vasicek and the CIR models