A Performance Analysis of Participating Life Insurance Contracts
Journal
Insurance: Mathematics and Economics
ISSN
0167-6687
ISSN-Digital
1873-5959
Type
journal article
Date Issued
2013-07
Author(s)
Abstract
Participating life insurance contracts are one of the most important products in the European life insurance market. Even though these contract forms are very common, only very little research has been conducted in respect to their performance. Hence, we conduct a performance analysis to provide a decision support for policyholders. We decompose a participating life insurance contract in a term life insurance and a savings part and simulate the cash flow distribution of the latter. Simulation results are compared with cash flows resulting from two benchmarks investing in the same portfolio of assets but without investment guarantees and bonus distribution schemes, in order to measure the impact of these two product features. To provide a realistic picture within the two alternatives, we take transaction costs and wealth transfers between different groups of policyholders into account. We show that the payoff distribution strongly depends on the initial reserve situation and managerial discretion. Results indicate that policyholders will in general profit from a better payoff distribution of the participating life insurance compared to a mutual fund benchmark but not compared to an exchange-traded fund benchmark portfolio.
Language
English
Keywords
Participating life insurance contracts
Policies with profits
Interest rate guarantees
HSG Classification
contribution to scientific community
HSG Profile Area
SoM - Responsible Corporate Competitiveness (RoCC)
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
51
Number
1
Start page
158
End page
171
Pages
14
Subject(s)
Division(s)
Eprints ID
226046