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Solvency capital requirement for German unit-linked insurance products

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Author Info

  • Kochanski, Michael

Abstract

Innovative Lebensversicherungsprodukte wie fondsgebundene Lebensversicherungen, Hybrid-Lebensversicherungen und Variable Annuities erfreuen sich rasch zunehmender Nachfrage und haben einen großen Anteil am Neugeschäft in Deutschland. Da traditionelle Versicherungsprodukte weiterhin den Großteil an den Beständen der Lebensversicherer ausmachen, konzentrierte sich die Diskussion über die Standardformel zur Berechnung des Solvenzkapitals bisher weitgehend auf ebendiese Produkte. Eine ausführliche Diskussion darüber, wie Solvenzkapital für innovative Lebensversicherungsprodukte im Rahmen der Standardformel berechnet werden kann, ist deshalb erforderlich. -- Innovative life insurance products such as unit-linked life insurance, hybrid life insurance, and variable annuities are rapidly gaining popularity and becoming a major part of new business in Germany. However, since traditional life insurance products still dominate the portfolios of life insurance companies, discussions about the standard formula for determining the solvency capital requirement have focused on this type of business. Any detailed discussion on how to calculate the solvency capital requirement for innovative life insurance products within the standard formula has yet to occur. This paper brings to light some interesting facts about unit-linked business and Solvency II. The modeling of lapses is another focus of research, reflecting the increased importance of lapse risks for innovative life insurance products. Since there are strong concerns about nonlinearities between the various risks, especially between market risk and lapse risk, the paper examines this problem as well. Finally, an alternative method for calculating the net solvency capital requirement, the so-called single equivalent scenario (also referred to as the killer-scenario), is presented.

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Bibliographic Info

Article provided by University of Cologne, Department of Risk Management and Insurance in its journal German Risk and Insurance Review (GRIR).

Volume (Year): 6 (2010)
Issue (Month): 2 ()
Pages: 33-70

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Handle: RePEc:zbw:grirej:68727

Contact details of provider:
Web page: http://www.risk-insurance.de/

Related research

Keywords: FLV; Solvency II; Standardformel; single equivalent scenario; dynamisches Storno; unit-linked insurance; Solvency II; standard formula; single equivalent scenario; dynamic policyholder behavior;

References

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  1. Anna Rita Bacinello, 2003. "Fair Valuation of a Guaranteed Life Insurance Participating Contract Embedding a Surrender Option," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(3), pages 461-487.
  2. Bauer, Daniel & Kiesel, Rudiger & Kling, Alexander & Ru[ss], Jochen, 2006. "Risk-neutral valuation of participating life insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 39(2), pages 171-183, October.
  3. Weiyu Kuo & Chenghsien Tsai & Wei-Kuang Chen, 2003. "An Empirical Study on the Lapse Rate: The Cointegration Approach," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(3), pages 489-508.
  4. Luca Anzilli & Luigi De Cesare, 2007. "Valuation of the surrender option in unit-linked life insurance policies in a non-rational behaviour framework," Quaderni DSEMS 20-2007, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  5. Matthew Elderfield, 2009. "Solvency II: Setting the Pace for Regulatory Change," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 34(1), pages 35-41, January.
  6. Outreville, J. Francois, 1990. "Whole-life insurance lapse rates and the emergency fund hypothesis," Insurance: Mathematics and Economics, Elsevier, vol. 9(4), pages 249-255, December.
  7. Steffensen, Mogens, 2002. "Intervention options in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 31(1), pages 71-85, August.
  8. Grosen, Anders & Lochte Jorgensen, Peter, 2000. "Fair valuation of life insurance liabilities: The impact of interest rate guarantees, surrender options, and bonus policies," Insurance: Mathematics and Economics, Elsevier, vol. 26(1), pages 37-57, February.
  9. Nordahl, Helge A., 2008. "Valuation of life insurance surrender and exchange options," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 909-919, June.
  10. Thomas Steffen, 2008. "Solvency II and the Work of CEIOPS," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 33(1), pages 60-65, January.
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Cited by:
  1. Fischer, Katharina & Schlütter, Sebastian, 2012. "Optimal investment strategies for insurance companies in the presence of standardised capital requirements," ICIR Working Paper Series 09/12, International Center for Insurance Regulation (ICIR), Goethe University Frankfurt.

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