On Surrender and Default Risks

Courtois, Olivier Le; Nakagawa, Hidetoshi

doi:10.2139/ssrn.1730327

Cited by 6 publications

(15 citation statements)

References 25 publications

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“…(2010) Unrealized losses Loisel and Milhaud (2011) Dr Le Courtois and Nakagawa (2011) r, S Unit-linked products Kolkiewicz and Tan (2006) Volatility Anzilli and De Cesare (2007) Advertising Kochanski (2010) Rate of return Li and Szimayer (2010) MSO Variable annuities American Academy of Actuaries ( …”

Section: Lapse In Life Insurancementioning

confidence: 99%

“…The combined lapse rate is then calculated using the multiple decrement model. This technique is used by Kolkiewicz and Tan (2006), Tsai et al (2009), De Giovanni (2010), Li and Szimayer (2010) and Le Courtois and Nakagawa (2011). In accordance with Kolkiewicz and Tan (2006), we define the baseline hazard rate function μ det ( t ) and the stochastic hazard rate function μ ( t , θ t ,1 , … , θ t , n ) with θ i denoting the lapse drivers.…”

Section: Theoretical Models and Empirical Evidencementioning

confidence: 99%

“…Since lapse rates can also be driven by multiple factors, some other interesting drivers have been implemented in dynamic lapse rate models. Le Courtois and Nakagawa (2011) introduce a stochastic lapse rate correlated with stochastic interest rates and other risky assets. In Kolkiewicz and Tan (2006), the lapse rate is driven by stochastic volatility and Kochanski (2010) uses the return of the policies' assets as a lapse driver.…”

Section: Theoretical Models and Empirical Evidencementioning

confidence: 99%

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Research on lapse in life insurance: what has been done and what needs to be done?

Eling

Kochanski

2013

The Journal of Risk Finance

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Access to this document was granted through an Emerald subscription provided by emerald-srm: 409465 [] For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to review research on lapse in life insurance and to outline potential new areas of research in this field. Design/methodology/approach -The authors consider theoretical lapse rate models as well as empirical research on life insurance lapse and provide a classification of these two streams of research. More than 50 theoretical and empirical papers from this important field of research are reviewed. Challenges for lapse rate modeling, lapse risk mitigation techniques, and possible trends in future lapse behavior are discussed. Findings -Lapse rate modeling has been a very active field of research in the last years, as evidenced by the 44 papers on lapse modeling considered in this review. Moreover, a fair amount of empirical work (another 12 papers) has been done, especially on the issue of how environmental variables affect lapse. Research on individual policyholder and contract information is more scarce, since such information is typically treated as confidential. Practical implications -The risks arising from lapse are of high economic importance. Lapsation is thus of interest not only to academics, but is highly relevant for the industry, regulators, and policymakers, especially in regard to designing an appropriate regulatory environment. Lapsation also impacts many actuarial tasks, such as product design, pricing, hedging, and risk management. A review of the recent literature might be helpful for these tasks. Originality/value -To the best of the authors' knowledge, this is the first structured review of the increasingly important literature on life insurance lapsation. Next to the structured review of the existing models and the empirical evidence, the paper also contributes to the literature by discussing challenges for lapse rate modeling and possible trends.

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Section: Lapse In Life Insurancementioning

confidence: 99%

Section: Theoretical Models and Empirical Evidencementioning

confidence: 99%

Section: Theoretical Models and Empirical Evidencementioning

confidence: 99%

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Research on lapse in life insurance: what has been done and what needs to be done?

Eling

Kochanski

2013

The Journal of Risk Finance

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“…A common market and academic practice to surrender modelling (see Kolkiewicz and Tan, 2006, Le Courtois and Nakagawa, 2011, Ducuroir et al, 2016, for example) is to consider two components: a deterministic baseline hazard rate function capturing lapses 1 due to noneconomic factors, and a stochastic process representing additional shocks to the baseline due to changes in the market.…”

Section: The Variable Annuity Contractmentioning

confidence: 99%

“…Further, we subdivide insurance risk into surrender risk and mortality risk. For the surrender risk, we follow market practice by considering two components: one capturing the baseline surrender behaviour due to non-economic factors and personal contingencies, and the second one which instead is responsive to changes in the conditions of the financial markets (see Kolkiewicz and Tan, 2006, Le Courtois and Nakagawa, 2011, Ducuroir et al, 2016. This component in particular includes a function of the spread between the rate of the contract and the rate offered on the market for equivalent products, and therefore incorporates the stochastic inputs from the financial market model.…”

Section: Introductionmentioning

confidence: 99%

Variable annuities in a Lévy-based hybrid model with surrender risk

Ballotta

Eberlein

Schmidt

et al. 2019

Quantitative Finance

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This paper proposes a market consistent valuation framework for variable annuities with guaranteed minimum accumulation benefit, death benefit and surrender benefit features. The setup is based on a hybrid model for the financial market and uses timeinhomogeneous Lévy processes as risk drivers. Further, we allow for dependence between financial and surrender risks. Our model leads to explicit analytical formulas for the quantities of interest, and practical and efficient numerical procedures for the evaluation of these formulas. We illustrate the tractability of this approach by means of a detailed sensitivity analysis of the fair value of the variable annuity and its components with respect to the model parameters. The results highlight the role played by the surrender behaviour and the importance of its appropriate modelling.

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