Rising interest rates, lapse risk, and the stability of life insurers

Arbeitspapier

This 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.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ICIR Working Paper Series ; No. 29/17

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: Interest Rate Risk ; Lapse Risk ; Life Insurance

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Berdin, Elia ; Gründl, Helmut ; Kubitza, Christian
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, International Center for Insurance Regulation (ICIR)
• (wo): Frankfurt a. M.
• (wann): 2017

Weitere Informationen

• Handle: http://hdl.handle.net/10419/167321
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ