Valuation and risk assessment of participating life insurance in the presence of credit risk
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- 作者：Johanna Eckert johanna.eckert@fau.de ; Nadine Gatzert ; nadine.gatzert@fau.de ; Michael Martin michael.martin@fau.de
- 关键词：Participating life insurance ; Credit risk ; Interest rate risk ; Risk-neutral valuation ; Asset management
- 刊名：Insurance: Mathematics and Economics
- 出版年：2016
- 出版时间：November 2016
- 年：2016
- 卷：71
- 期：Complete
- 页码：382-393
- 全文大小：948 K
- 卷排序：71
文摘
In participating life insurance, management decisions regarding the asset composition can substantially impact the value of a policy from the policyholders’ perspective as well as the insurer’s risk situation. Due to the long-term guarantees often embedded in these contracts, life insurers typically invest a considerable portion of their capital in long-term assets such as corporate and government bonds. Besides interest rate risk, the value of these bond investments is thus particularly influenced by credit risk. Thus, the aim of this paper is to examine the impact of market risk associated with the asset composition on fair valuation and risk assessment with focus on credit risk and its interaction with equity risk and interest rate risk. Our analysis emphasizes that the consideration of credit risk associated with bonds has a strong impact on the fair valuation and risk measurement in the context of participating life insurance contracts, even in case of higher grade bond exposures.