Maximum Technical Interest Rates in Life Insurance in Europe and the United States: An Overview and Comparison

Eling, Martin; Holder, Stefan

doi:10.1057/gpp.2012.41

Cited by 22 publications

(20 citation statements)

References 6 publications

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“…20) have defined upper bounds for interest rate guarantees. Grosen and Jorgensen (, Table ) summarize maximum rates for several countries: while the United States has not set a maximum rate, European Union countries as well as Japan have established such limits (see, e.g., Cummins, Miltersen, and Persson, ; Eling and Holder, , for a detailed comparison)…”

Section: Introductionmentioning

confidence: 99%

A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts

Schmeiser

Wagner

2014

J of Risk & Insurance

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We consider a contingent claim model framework for participating life insurance contracts and assume a competitive market with minimum solvency requirements as provided by Solvency II. In a first step, the implications of the regulator's imposing a particular interest rate guarantee on the insurer's asset allocation are analyzed in a reference situation. We study the sensitivity of the interaction between the interest rate guarantee and the asset allocation when the risk-free interest rate changes. Particular attention is paid to the current market situation where the guaranteed interest rate is often close to the risk-free interest rate. In a second step, we assess at what level the interest rate guarantee should be set by the regulator in order to maximize policyholders' utility. We show that the results yielded by the proposed concept to derive an optimal value for the interest rate guarantee are very stable for various model parameters. IntroductionA minimum interest rate guarantee and participation in the annual return of the insurance company's asset portfolio are the two core components in traditional endowment contracts most popular in the German-speaking countries. Both elements are offered in so-called participating life insurance contracts and are in general regulated by the insurance supervisory authority. In current contracts offered, minimum interest rate guarantees are based on the savings premium and usually provided on a year-by-year basis (cliquet-style) for the whole contract duration. Contracts often have a very long duration with savings accumulation periods of over 40 years. 1 In view of (higher) equity capital requirements under new solvency regulations (see, e.g., Solvency II in

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Section: Introductionmentioning

confidence: 99%

A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts

Schmeiser

Wagner

2014

J of Risk & Insurance

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“…Published papers are addressing the topic at many circuits and partial questions. One factor that affects the calculation of technical provisions is an assessment of the risk, which is a very complex problem [3][4][5] Expedient are analysis, evaluation and reports on regional and national levels that explain the specifics of a particular insu rance sector [6][7][8][9][10]. The attention is paid at the application of mathematical and statistical methods and modelling in order to apply procedures that allow implementing processes which take into account all the elements for the calculation [10][11][12].…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Technical reserves in insurance and Slovak insurance market

Hudáková¹,

Adamko²

2017

EA-XXI

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Abstract. Currently, there are 37 insurance companies and branches of foreign insurance companies operating in Slovakia. The impact on results of operations of insurance companies have obligations to clients and investment activities. Insurance works by creating reserves, which are on the one hand intended to eliminate the negative financial consequences and the fulfillment of the obligations and, on the other hand, to realize their own investment policy. Control mechanism based on the establishment of technical provisions must guarantee, if necessary, their availability.Technical provisions in insurance are used as mathematical and statistical methods for calculating basic characteristics. Parametric trend estimation uses the method of least squares known from regression analysis. The starting point of the analysis is a set of data published by the National Bank of Slovakia for the period of [2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014]. Identification of the trend in the technical insurance in the area of life and non-life insurance in the Slovak Republic for 2004-2014 has been realised taking into consideration three basic types of time series (linear, quadratic and exponential) as well as basic characteristics of the technical insurance were found out in order to create a model for the linear trend up to 2017. Prognoses of the technical insurance in life and non-life insurance for the 2013-2017 have been elaborated. The results show that profitability of the insurance sector has not fundamentally changed lately and remained sufficient. The solvency of the insurance companies increased significantly due to the profits of re-evaluation of the commercial papers in the portfolio for sales. In life insurance the growth of technical premium continues, although its structure has changed. In non-life insurance, negative trends continued in car insurance. It can be concluded that as a result of higher competitiveness, the insurance shows a downward trend and the profitability in the insurance sector is lower, however, insurance premiums remain sufficient. Худакова М. кандидат економічних наук, доцент кафедри малого та середнього підприємництва, Вища школа економіки та менеджменту в галузі державного управління в Братиславі, Словаччина Адамко Й. кандидат економічних наук, кафедра економіки та фінансів, Вища школа економіки і управління в галузі державного управління в Братиславі, Словаччина Технічні положення страхування і страховий ринок Словаччини Анотація. Страхування працює шляхом створення резервів, які, з одного боку, спрямовані на усунення негативних фінансових наслідків і виконання зобов'язань, а з іншого боку, на реалізацію власної інвестиційної політики. Створені технічні положення в галузі страхування повинні гарантувати, в разі необхідності, доступність резервів для покриття страхових зобов'язань. Регулятором галузі виступає Національний банк Словаччини. Відправною точкою нашого аналізу є набір даних, опублікованих Національним банком Словаччини за період 2004-2014 років. На підставі р...

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“…Due to competition among life insurers, we assume that the guarantee of newly sold life insurance contracts equals the current maximum technical interest rate for discounting policy reserve as set by the regulator. 4 As discussed in Eling and Holder (2012) and Berdin and Gründl (2015), r h G follows in 0.5% steps 60% of the 10 year moving average of past AAA German sovereign rates (i.e. the reference rate) with maturity 10 years.…”

Section: Liabilitiesmentioning

confidence: 99%

“…Eling and Holder (2012) discuss how technical rates differ in different jurisdictions in Europe and the U.S.…”

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confidence: 99%

Rising Interest Rates, Lapse Risk, and the Stability of Life Insurers

Berdin,

Grrndl,

Kubitza

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractThis paper investigates the effects of a rise in interest rate and lapse risk of endowment life insurance policies on the liquidity and solvency of life insurers. We model the book and market value balance sheet of an average German life insurer, subject to both GAAP and Solvency II regulation, featuring an existing back book of policies and an existing asset allocation calibrated by historical data. The balance sheet is then projected forward under stochastic financial markets. Lapse rates are modeled stochastically and depend on the granted guaranteed rate of return and prevailing level of interest rates. Our results suggest that in the case of a sharp increase in interest rates, policyholders sharply increase lapses and the solvency position of the insurer deteriorates in the short-run. This result is particularly driven by the interaction between a reduction in the market value of assets, large guarantees for existing policies, and a very slow adjustment of asset returns to interest rates. A sharp or gradual rise in interest rates is associated with substantial and persistent liquidity needs, that are particularly driven by lapse rates.

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Maximum Technical Interest Rates in Life Insurance in Europe and the United States: An Overview and Comparison

Cited by 22 publications

References 6 publications

A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts

A Proposal on How the Regulator Should Set Minimum Interest Rate Guarantees in Participating Life Insurance Contracts

Technical reserves in insurance and Slovak insurance market

Rising Interest Rates, Lapse Risk, and the Stability of Life Insurers

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