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Liability assessment of life insurance companies in regime switching market

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  • Dongxu Zhao
  • Chaonan Song

Abstract

This article considers the liability evaluation of life insurance companies in the regime-switching market. We first construct a model of interest rate risk with regime switching. Second, we construct a reserve evaluation model for life insurance companies, specifically accounting for regime switching. Subsequently, the parameters of the risk model are estimated for interest rate, mortality rate, and surrender rate. Finally, using endowment insurance as a case study, the liabilities of life insurance companies are evaluated. Our findings indicate that the regime-switching model provides a better fit for interest rate risk than the traditional model and further reveal that the liabilities of life insurance companies are often underestimated when utilizing the traditional interest rate risk model.

Suggested Citation

  • Dongxu Zhao & Chaonan Song, 2025. "Liability assessment of life insurance companies in regime switching market," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 54(22), pages 7210-7229, November.
    • Handle: RePEc:taf:lstaxx:v:54:y:2025:i:22:p:7210-7229
    DOI: 10.1080/03610926.2025.2467204
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