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The Distributions of Policy Reserves Considering the Policy-Year Structures of Surrender Rates and Expense Ratios

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  • Chenghsien Tsai
  • Weiyu Kuo
  • Derek Mi-Hsiu Chiang
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    Abstract

    In this article, we examine how the policy-year structures of expense ratios and surrender rates affect the distributions of policy reserves. Our results show that a convex expense ratio curve, though reduces the mean and the uncertainty of reserves, could make the beneficial impact of surrenders on insurers become detrimental. Our results also show that the convexity of the surrender rate curve is favorable to insurers while the volatilities of surrender rates are unfavorable. We further find that neglecting the policy-year structures of surrender rates and expense ratios may result in overestimation of the mean and the uncertainty of reserves. 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: 909-931

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    Handle: RePEc:bla:jrinsu:v:76:y:2009:i:4:p:909-931

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    Cited by:
    1. Eling, Martin & Kochanski, Michael, 2012. "Research on Lapse in Life Insurance – What Has Been Done and What Needs to Be Done?," Working Papers on Finance 1224, University of St. Gallen, School of Finance.

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