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Effect of the Yield Level, the Inflation Environment and the Pandemic on the Lapse Rates of Life Insurances

Author

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  • Laszlo Szepesvary

    (Magyar Posta Eletbiztosito Zrt)

Abstract

This study examines the lapse rates of certain life insurances in relation to various economic and non-economic events, analysing empirical insurance data, in search of answers to the questions of what impact the changed yield and inflation environments and lockdowns due to Covid-19 had on the cancellation of contracts, and how sensitive policyholders are to changes in yields in the case of certain investment-type insurances. In addition to the conclusions drawn on the basis of time series data, further statistical analyses (such as Granger causality testing, contract classification with k-means clustering) contribute to a more complete picture. The effect of certain changes in the interest rate level on lapses can be detected in the case of the single premium investment-type insurance under review (especially for the higher premium classes). No similar behaviour is typical of the current premium insurances under review, and so far it has also not been possible to detect any significant relationship with lapses in connection with inflation or the lockdowns due to Covid-19.

Suggested Citation

  • Laszlo Szepesvary, 2022. "Effect of the Yield Level, the Inflation Environment and the Pandemic on the Lapse Rates of Life Insurances," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(3), pages 44-72.
    • Handle: RePEc:mnb:finrev:v:21:y:2022:i:3:p:44-72
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    References listed on IDEAS

    as
    1. István Ábel & Máté Lóga & Gyula Nagy & Árpád Vadkerti, 2019. "Lifting the Veil on Interest," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 18(3), pages 29-51.
    2. Andras Balogh, 2021. "What Causes Inflation? - The Relationship between Central Bank Policies and Inflation," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 20(4), pages 144-156..
    3. Changki Kim, 2005. "Modeling Surrender and Lapse Rates With Economic Variables," North American Actuarial Journal, Taylor & Francis Journals, vol. 9(4), pages 56-70.
    4. David T. Russell & Stephen G. Fier & James M. Carson & Randy E. Dumm, 2013. "An Empirical Analysis of Life Insurance Policy Surrender Activity," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 36(1), pages 35-57.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    life insurance; lapse rate; yield environment; inflation; Covid-19; time series analysis;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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