Maximum Technical Interest Rates in Life Insurance in Europe and the United States: An Overview and Comparison
Journal
The Geneva Papers on Risk and Insurance - Issues and Practice
ISSN
1018-5895
ISSN-Digital
2311-0112
Type
journal article
Date Issued
2012-10-10
Author(s)
Abstract
We compare the regulatory environment for the maximum technical interest rate of life insurance contracts in four European countries and the United States. In Germany, Austria and Switzerland, the maximum rate is driven by a long-term rolling average of government bond yields and is adjusted by the regulator. In the U.S., corporate bond yields are used and the regulator is not directly involved in setting the maximum rate. The regime implemented in the United Kingdom is unique: instead of a rules-based "one-size-fits-all" approach, the maximum rate is determined by a company-specific principle-based method. We provide a comparative analysis of the different systems and conduct a numerical analysis to investigate how the maximum rate will develop under predefined interest rate scenarios. The discussion is highly relevant in light of Solvency II, a regime that may fundamentally change regulation of the maximum technical interest rate.
Language
English
Keywords
life insurance
insurance regulation
interest rates
scenario analysis
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Palgrave Macmillan
Publisher place
Basingstoke
Volume
38
Number
2
Start page
354
End page
375
Pages
22
Subject(s)
Division(s)
Eprints ID
220312
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Name
Maximum Technical Interest Rates in Life Insurance in Europe and the United States An Overview and Comparison.pdf
Size
361.14 KB
Format
Adobe PDF
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