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The Impact of the Secondary Market on Life Insurers' Surrender Profits

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  • Nadine Gatzert
  • Gudrun Hoermann
  • Hato Schmeiser
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    Abstract

    Life insurers often claim that the life settlement industry reduces their surrender profits and leads to an adverse shift in their portfolio of insured risks; that is, high risks remain in the portfolio instead of surrendering. In this article, we aim to quantify the effect of altered surrender behavior--subject to the health status of an insured--in a portfolio of life insurance contracts on the surrender profits of primary insurers. Our model includes mortality heterogeneity by applying a stochastic frailty factor to a mortality table. We additionally analyze the impact of the premium payment method by comparing results for annual and single premium payments. Copyright (c) The Journal of Risk and Insurance, 2009.

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    Bibliographic Info

    Article provided by The American Risk and Insurance Association in its journal Journal of Risk and Insurance.

    Volume (Year): 76 (2009)
    Issue (Month): 4 ()
    Pages: 887-908

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    Handle: RePEc:bla:jrinsu:v:76:y:2009:i:4:p:887-908

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    Cited by:
    1. Martin Eling & Dieter Kiesenbauer, 2012. "Does Surplus Participation Reflect Market Discipline? An Analysis of the German Life Insurance Market," Journal of Financial Services Research, Springer, vol. 42(3), pages 159-185, December.

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