<scp>The Downfall of Equitable Life in the United Kingdom: The Mismatch of Strategy and Risk Management</scp>

O’Brien, Chris

doi:10.1111/j.1540-6296.2006.00093.x

Cited by 13 publications

(12 citation statements)

References 17 publications

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“…The case of the Equitable Life Assurance Society in the United Kingdom further intensified this discussion of the assessment of embedded options. The decline of the company was related to pension policies including guaranteed annuity options as outlined in O'Brien (2006). In the 1990s, market annuity rates dropped significantly.…”

Section: Related Literature and Research Questionmentioning

confidence: 99%

Main Determinants of Lapse in the German Life Insurance Industry

Kiesenbauer

2012

North American Actuarial Journal

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This paper studies the determinants of lapse in the German life insurance industry. Logistic regression models are employed using data on macroeconomic indicators and company characteristics of 133 German life insurers from 1997 to 2009. Five different product categories are considered (endowment, annuity, term life, group, and other). The findings indicate that the main lapse determinants are very similar across all product categories, except that the direction of impact is reversed for the product category ''other,'' which consists almost exclusively of unitlinked business. In particular, the interest rate and emergency fund hypotheses are supported only for unit-linked business, while these hypotheses do not hold for the remaining product categories. Overall, the analysis provides an understanding of lapse dynamics related to economic indicators and company characteristics. The derived models can be used to predict lapse rates for the different product categories considered. The results are important for insurance company managers, regulators, and life insurance customers.

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Section: Related Literature and Research Questionmentioning

confidence: 99%

Main Determinants of Lapse in the German Life Insurance Industry

Kiesenbauer

2012

North American Actuarial Journal

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“…A guaranteed annuity option gives the policyholder the option to annuitize the account value at the end of the accumulation phase at a predefined annuitization rate that can be higher than the market conditions on the annuitization date .…”

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confidence: 99%

On the Propensity to Surrender a Variable Annuity Contract: An Empirical Analysis of Dynamic Policyholder Behavior

Knoller¹,

Kraut²,

Schoenmaekers³

2015

J of Risk & Insurance

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We empirically analyze surrender behavior for variable annuity contracts using Japanese individual policy data. For traditional life insurance products, surrender behavior is typically explained by the interest rate and the emergency fund hypotheses. For variable annuities, the interest rate hypothesis is not directly applicable. For these products, we expect the value of the financial options and guarantees provided to the policyholder to drive surrender behavior. We define this expectation as the "moneyness hypothesis." The statistical analysis confirms our moneyness hypothesis: the value of the embedded financial options and guarantees has the largest explanatory power for the surrender rate. The extent to which this finding holds depends on the single premium paid, which we consider a proxy for the policyholder's financial literacy. Moreover, our data set weakly supports the emergency fund hypothesis for the case of variable annuities.

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“…The company had competed aggressively to increase its market share in the pension annuities market, but it had done so at the expense of offering what would turn out to be very costly guarantees. 2 In the early 2000s, after a court case, the guarantees proved to be too costly, and facing substantial shortfalls the company shut down for business (O'Brien, 2004(O'Brien, , 2006. The affair turned into a major scandal, with estimated policyholder losses totalling £4.1bn, of which £1.5bn were covered by the government (HM Treasury, 2016).…”

Section: Modelling Insurancementioning

confidence: 99%

Model migration and rough edges: British actuaries and the ontologies of modelling

Heide

2019

Soc Stud Sci

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The existing literature on modelling provides two main ways of viewing model migration: a modular view, which seeks to decompose models in their constitutive elements, and thus provides a view on what it is that migrates; and a practice-based view, which focuses on modelling as an activity, and understands a model as intricately entangled with its context of use. This article brings together these two sensitivities by focusing on ontologies of modelling. The paper presents a case study of the appropriation of modern finance theory’s ‘no-arbitrage’ models by British actuaries – a process that gradually unfolded at around the turn of the century and led to significant friction within the UK’s insurance industry. We can distinguish two main modelling ontologies: a ‘risk-neutral ontology’, which underpins no-arbitrage models and holds that the value of financial instruments is determined by ‘arbitrage’; and, a ‘real-world ontology’, which assumes that the economic world consists of real probabilities that may be approximated through a combination of archival-statistical methods and expert judgment. The appropriation of the risk-neutral modelling ontology was made possible by the declining legitimacy of actuarial expertise as ‘financial stewards’ of life insurance companies. The risk-neutral modelling ontology provided an ‘objective’ alternative to the traditional actuarial models, which explicitly required actuaries to make ‘prudent’ judgments. Despite the fact that the no-arbitrage modelling was considered an ‘objective’ affair, the valuation models that insurers use today are strongly shaped by political compromises, a result of the ‘rough edges’ of models.

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The Downfall of Equitable Life in the United Kingdom: The Mismatch of Strategy and Risk Management

Cited by 13 publications

References 17 publications

Main Determinants of Lapse in the German Life Insurance Industry

Main Determinants of Lapse in the German Life Insurance Industry

On the Propensity to Surrender a Variable Annuity Contract: An Empirical Analysis of Dynamic Policyholder Behavior

Model migration and rough edges: British actuaries and the ontologies of modelling

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