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Hato Schmeiser
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Prof. Dr.
Last Name
Schmeiser
First name
Hato
Email
hato.schmeiser@unisg.ch
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+41 71 224 3650
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1 - 10 of 31
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PublicationHow Does Price Presentation Influence Consumer Choice? The Case of Life Insurance Products(American Risk and Insurance Association, Inc., 2015)
Scopus© Citations 16 -
PublicationPerformance and Risks of Open-End Life Settlement FundsIn this paper, we comprehensively analyze open-end funds dedicated to investing in U.S. senior life settlements. We begin by explaining their business model and the roles of institutions involved in the transactions of such funds. Next, we conduct the first empirical analysis of life settlement fund return distributions as well as a performance measurement, including a comparison to other asset classes. Since the funds contained in our dataset cover a large fraction of this relatively young segment of the capital markets, representative conclusions can be derived. Even though the empirical results suggest that life settlement funds offer attractive returns paired with low volatility and are virtually uncorrelated with other asset classes, we find latent risk factors such as liquidity, longevity and valuation risks. Since these risks did generally not materialize in the past and are hence largely not reflected by the historical data, they cannot be captured by classical performance measures. Thus, caution is advised in order not to overestimate the performance of this asset class.Type: journal articleJournal: Journal of Risk and InsuranceVolume: 79Issue: 1
Scopus© Citations 18 -
PublicationCreating Customer Value In Participating Life InsuranceThe value of a life insurance contract may differ depending on whether it is looked at from the customer's point of view or that of the insurance company. We assume that the insurer is able to replicate the life insurance contract's cash flows via assets traded on the capital market and can hence apply risk-neutral valuation techniques. The policyholder, on the other hand, will take risk preferences and diversification opportunities into account when placing a value on that same contract. Customer value is represented by policyholder willingness to pay and depends on the contract parameters, i.e., the guaranteed interest rate and the annual and terminal surplus participation rate. The aim of this paper is to analyze and compare these two perspectives. In particular, we identify contract parameter combinations that--while keeping the contract value fixed for the insurer--maximize customer value. Our results suggest that it would be very worthwhile for insurance companies to engage in customer segmentation based on the different ways customers evaluate life insurance contracts and embedded investment guarantees as doing so could result in substantial increases in policyholder willingness to pay.Type: journal articleJournal: Journal of Risk and InsuranceVolume: 79Issue: 3
Scopus© Citations 34 -
PublicationIndustry Loss Warranties: Contract Features, Pricing, and Central Demand FactorsThe purpose of this paper is to provide a detailed analysis of industry loss warranties (ILWs), an alternative risk transfer instrument which has become increasingly popular throughout the last few years. The authors first point out key characteristics of ILWs important to investor and cedent, including transaction costs, moral hazard, basis risk, counterparty risk, industry loss index, and regulation. Next, the authors present and discuss the adequacy of actuarial and financial approaches for pricing ILWs, as well as the aspects of basis risk. Finally, drivers of demand and associated models frameworks from the purchaser's viewpoint are studied. Financial pricing approaches for ILWs are highly sensitive to input parameters, which is important given the high volatility of the underlying loss index. In addition, the underlying assumption of replicability of the claims is not without problems. Due to their simple and standardized structure and the dependence on a transparent industry loss index, ILWs are low-barrier products, which can also be offered by hedge funds. In principle, traditional reinsurance contracts are still preferred as a measure of risk transfer, especially since these are widely accepted for solvency capital reduction. However, the main important impact factor for the demand of ILWs from the perspective of market participants, i.e. large diversified reinsurers and hedge funds, is the lower price due to rather low transaction costs and less documentation effort. Hence, ILWs are attractive despite the introduction of basis risk and the still somewhat opaque regulatory environment. An important issue for future research is how reinsureds deal with the basis risk inherent in ILWs. Another central point is the development of a European industry loss index and the creation of an exchange platform to enable an even higher degree of standardization and a faster processing of transactions. ILWs feature an industry loss index to be triggered, and, in some cases, a double-trigger design that includes a company indemnity trigger. ILW contracts belong to the class of alternative risk transfer instruments that have become increasingly popular, especially in the retrocession reinsurance market. There has been no comprehensive analysis of these instruments in academic literature to date. Consequently, the authors believe that this paper provides a high degree of originality.Type: journal articleJournal: Journal of Risk FinanceVolume: 13Issue: 1
Scopus© Citations 8 -
PublicationThe Merits of Pooling Claims RevistedPurpose – Definitions of pooling effects in insurance companies may convey the impression that the achieved risk reduction effect will be beneficial for policyholders, since typically lower premiums are paid for the same safety level with an increasing number of insureds, or a higher safety level is achieved for a given premium level for all pool members. However, this view is misleading and the purpose of this paper is to reexamine this apparent merit of pooling from the policyholder's perspective. Design/methodology/approach – This is achieved by comparing several valuation approaches for the policyholders' claims using different assumptions of the individual policyholder's ability to replicate the contract's cash flows and claims. Findings – The paper shows that the two considered definitions of risk pooling do not offer insight into the question of whether pooling is actually beneficial for policyholders. Originality/value – The paper contributes to the literature by extending and combining previous work, focusing on the merits of pooling claims (using the two definitions above) from the policyholder's perspective using different valuation approaches.Type: journal articleJournal: Journal of Risk FinanceVolume: 13Issue: 3
Scopus© Citations 10 -
PublicationOptimal Risk Classification with an Application for Substandard AnnuitiesSubstandard annuities pay higher pensions to individuals with impaired health and thus require special underwriting of applicants. Although such risk classification can substantially increase a company's profitability, these products are uncommon except for the well-established U.K. market. In this paper we comprehensively analyze this issue and make several contributions to the literature. First, we describe enhanced, impaired life, and care annuities, and then we discuss the underwriting process and underwriting risk related thereto. Second, we propose a theoretical model to determine the optimal profit-maximizing risk classification system for substandard annuities. Based on the model framework and for given price-demand dependencies, we formally show the effect of classification costs and costs of underwriting risk on profitability for insurers. Risk classes are distinguished by the average mortality of contained insureds, whereby mortality heterogeneity is included by means of a frailty model. Third, we discuss key aspects regarding a practical implementation of our model as well as possible market entry barriers for substandard annuity providers.Type: journal articleJournal: North American Actuarial JournalVolume: 16Issue: 4
Scopus© Citations 14 -
PublicationPrice Presentation and Consumers' ChoiceCurrently, regulatory authorities and consumers ask for more cost transparency with respect to financial product components. In life insurance, for instance, the premium for products should be split in its components: A premium for death benefits, the savings premium, the cost of an investment guarantee, and the administration costs. In this regard, it is important for insurance companies and regulators to know to what extent the way of presenting the prices of an offer affects consumer evaluation of the product. Based on a paper by Huber et al. (How do price presentation effects influence consumer choice? The case of life insurance products. Working paper, 2011) as presented at the annual meeting of Deutscher Verein für Versicherungswissenschaft in 2011, this article presents the effects of different forms of presenting the price of life insurance contract components and especially of investment guarantees on consumer evaluation of this product. This is done by means of an experimental study using a representative panel for Switzerland and by focusing on unit-linked life insurance products. The findings reveal that, contrary to consumer products, there is no effect of price bundling and price optic on consumer evaluation and purchase intention for life insurance products. However, there is a significant moderating effect of consumer experience with insurance products on this relationship.Type: journal articleJournal: Zeitschrift für die gesamte VersicherungswissenschaftVolume: 101Issue: 1
Scopus© Citations 2 -
PublicationOn the Risk Situation of Financial Conglomerates : Does Diversification Matter?In general, conglomeration leads to a diversification of risks (the diversification benefit)and to a decrease in shareholder value (the conglomerate discount). Diversification benefitsin financial conglomerates are typically derived without accounting for reducedshareholder value. However, a comprehensive analysis requires competitive conditionswithin the conglomerate, i.e., shareholders and debtholders should receive risk-adequatereturns on their investment. In this paper, we extend the literature by comparing the diversificationeffect in conglomerates with and without accounting for the altered shareholdervalue. We derive results for a holding company, a parent-subsidiary structure, andan integrated model. In addition, we consider different types of capital and risk transferinstruments in the parent-subsidiary model, including intra-group retrocession and guarantees.We conclude that under competitive conditions, diversification does not matter tothe extent frequently emphasized in the literature. The analysis aims to contribute to theongoing discussion on group solvency regulation and enterprise risk managementType: journal articleJournal: Financial Markets and Portfolio ManagementVolume: 25Issue: 1
Scopus© Citations 13 -
PublicationAn Analysis of Pricing and Basis Risk for Industry Loss WarrantiesIn recent years, industry loss warranties (ILWs) have become increasingly popular in the reinsurance market. The defining feature of ILW contracts is their dependence on an industry loss index. The use of an index reduces moral hazard and generally results in lower prices compared to traditional, purely indemnity-based reinsurance contracts. However, use of the index also introduces basis risk since the industry loss and the reinsured company's loss are usually not fully correlated. The aim of this paper is to simultaneously examine basis risk and pricing of an indemnity-based industry loss warranty contract, which is done by comparing actuarial and financial pricing approaches for different measures of basis risk. Our numerical results show that modification of the contract parameters to reduce basis risk can either raise or lower prices, depending on the specific parameter choice. For instance, basis risk can be reduced by decreasing the industry loss trigger, which implies higher prices, or by increasing the reinsured company attachment, thus inducing lower prices.Type: journal articleJournal: Zeitschrift für die gesamte VersicherungswissenschaftVolume: 100Issue: 4
Scopus© Citations 3 -
PublicationOn the Valuation of Investment Guarantees in Unit-Linked Life Insurance : A Customer PerspectiveInterest rate guarantees in unit-linked life insurance products ensure that at contract maturity, at least a minimum guaranteed amount is paid, even if the mutual fund falls below the guaranteed level. Strongly depending on the riskiness of the underlying mutual fund, these guarantees can be of substantial value. However, while insurer pricing is based on the replication of cash flows, customers are more likely to base their decisions on individual preferences. The aim of this paper is to contrast reservation prices for guarantees in unit-linked life insurance policies based on customers subjective willingness to pay with a financial pricing approach, an investigation that has not been undertaken to date. To do so, we use an online questionnaire survey as well as calculate reservation prices using option pricing theory. Our findings reveal that even though the majority of the participants in the online questionnaire are employed in the field of insurance, subjective prices are difficult to derive and are significantly lower on average than the prices obtained using a financial pricing model. However, a considerable portion of participants is still willing to pay a substantially higher priceType: journal articleJournal: Geneva Papers on Risk and InsuranceVolume: 36Issue: 1DOI: 10.1057/gpp.2010.35
Scopus© Citations 20