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Life Insurance in a Contingent Claim Framework: Pricing and Regulatory Implications


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  • Eric Briys

    (Professor of Finance, Groupe HEC, F-78350 Jouy-en-Josas, France)

  • Fran�ois De Varenne

    ([1] 2Ph.D. Student Research Fellow, Groupe HEC, France [2] 3Research Fellow, FFSA, France)

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    In this paper we develop a contingent claim model to evaluate the equity and liabilities of a life insurance company. The limited liability of shareholders is explicitly modelled. We focus on a specific type of life insurance policy–namely, the profit-sharing policy. In this policy, the policyholder is entitled to a guaranteed interest rate and a percentage of the company's yearly financial revenues. The implicit equilibrium interest rate and profit-sharing ratio are derived and analyzed. We finally discuss regulatory measures frequently encountered in the life insurance business such as rate ceilings, capital ratios, and asset restrictions. The Geneva Papers on Risk and Insurance Theory (1994) 19, 53–72. doi:10.1007/BF01112014

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.

    Volume (Year): 19 (1994)
    Issue (Month): 1 (June)
    Pages: 53-72

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    Handle: RePEc:pal:genrir:v:19:y:1994:i:1:p:53-72

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    Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK

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    Cited by:
    1. Klumpes, Paul J. M. & Shackleton, Mark B., 2000. "Valuing the strategic option to sell life insurance business: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1681-1702, October.
    2. Døskeland, Trond M. & Nordahl, Helge A., 2008. "Optimal pension insurance design," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 382-392, March.
    3. An Chen & Michael Suchanecki, 2006. "Default Risk, Bankruptcy Procedures and the Market Value of Life Insurance Liabilities," Bonn Econ Discussion Papers bgse8_2006, University of Bonn, Germany.
    4. Brigitte Poiblanc & Christophe Morel, 2001. "Une lecture "optionnelle" du bilan des compagnies d'assurance-vie," Économie et Prévision, Programme National Persée, vol. 149(3), pages 65-71.
    5. Steffensen, Mogens, 2002. "Intervention options in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 31(1), pages 71-85, August.
    6. Bernard, Carole & Le Courtois, Olivier & Quittard-Pinon, Francois, 2005. "Market value of life insurance contracts under stochastic interest rates and default risk," Insurance: Mathematics and Economics, Elsevier, vol. 36(3), pages 499-516, June.
    7. Nordahl, Helge A., 2008. "Valuation of life insurance surrender and exchange options," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 909-919, June.
    8. An Chen & Xia Su, 2009. "Knightian uncertainty and insurance regulation decision," Decisions in Economics and Finance, Springer, vol. 32(1), pages 13-33, May.


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