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Journal of Risk and Insurance
Volume 84, Issue 2
Featured Article

Risk Management of Policyholder Behavior in Equity‐Linked Life Insurance

Anne MacKay
Anne MacKay is with the Department of Mathematics at ETH Zürich; e‐mail: anne.mackay@math.ethz.ch. Maciej Augustyniak is with the Department of Mathematics and Statistics at the University of Montreal; e‐mail: augusty@dms.umontreal.ca. Carole Bernard is with the Department of Accounting, Law and Finance at Grenoble Ecole de Management; e‐mail: carole.bernard@grenoble-em.com. Mary R. Hardy is with the Department of Statistics and Actuarial Science at the University of Waterloo; e‐mail: mrhardy@uwaterloo.ca. All authors acknowledge support from NSERC. C. Bernard and M. R. Hardy acknowledge support from research grants awarded by the Global Risk Institute and the Society of Actuaries CAE (Centers of Actuarial Excellence). A. MacKay also acknowledges the support of the Hickman scholarship of the Society of Actuaries. The authors would like to thank P. Forsyth, B. Li, A. Kolkiewicz, and D. Saunders for helpful discussions.Search for more papers by this author
Maciej Augustyniak
Anne MacKay is with the Department of Mathematics at ETH Zürich; e‐mail: anne.mackay@math.ethz.ch. Maciej Augustyniak is with the Department of Mathematics and Statistics at the University of Montreal; e‐mail: augusty@dms.umontreal.ca. Carole Bernard is with the Department of Accounting, Law and Finance at Grenoble Ecole de Management; e‐mail: carole.bernard@grenoble-em.com. Mary R. Hardy is with the Department of Statistics and Actuarial Science at the University of Waterloo; e‐mail: mrhardy@uwaterloo.ca. All authors acknowledge support from NSERC. C. Bernard and M. R. Hardy acknowledge support from research grants awarded by the Global Risk Institute and the Society of Actuaries CAE (Centers of Actuarial Excellence). A. MacKay also acknowledges the support of the Hickman scholarship of the Society of Actuaries. The authors would like to thank P. Forsyth, B. Li, A. Kolkiewicz, and D. Saunders for helpful discussions.Search for more papers by this author
Carole Bernard
Anne MacKay is with the Department of Mathematics at ETH Zürich; e‐mail: anne.mackay@math.ethz.ch. Maciej Augustyniak is with the Department of Mathematics and Statistics at the University of Montreal; e‐mail: augusty@dms.umontreal.ca. Carole Bernard is with the Department of Accounting, Law and Finance at Grenoble Ecole de Management; e‐mail: carole.bernard@grenoble-em.com. Mary R. Hardy is with the Department of Statistics and Actuarial Science at the University of Waterloo; e‐mail: mrhardy@uwaterloo.ca. All authors acknowledge support from NSERC. C. Bernard and M. R. Hardy acknowledge support from research grants awarded by the Global Risk Institute and the Society of Actuaries CAE (Centers of Actuarial Excellence). A. MacKay also acknowledges the support of the Hickman scholarship of the Society of Actuaries. The authors would like to thank P. Forsyth, B. Li, A. Kolkiewicz, and D. Saunders for helpful discussions.Search for more papers by this author
Mary R. Hardy
Anne MacKay is with the Department of Mathematics at ETH Zürich; e‐mail: anne.mackay@math.ethz.ch. Maciej Augustyniak is with the Department of Mathematics and Statistics at the University of Montreal; e‐mail: augusty@dms.umontreal.ca. Carole Bernard is with the Department of Accounting, Law and Finance at Grenoble Ecole de Management; e‐mail: carole.bernard@grenoble-em.com. Mary R. Hardy is with the Department of Statistics and Actuarial Science at the University of Waterloo; e‐mail: mrhardy@uwaterloo.ca. All authors acknowledge support from NSERC. C. Bernard and M. R. Hardy acknowledge support from research grants awarded by the Global Risk Institute and the Society of Actuaries CAE (Centers of Actuarial Excellence). A. MacKay also acknowledges the support of the Hickman scholarship of the Society of Actuaries. The authors would like to thank P. Forsyth, B. Li, A. Kolkiewicz, and D. Saunders for helpful discussions.Search for more papers by this author
First published: 24 September 2015
https://doi.org/10.1111/jori.12094
Citations: 18

Abstract

The financial guarantees embedded in variable annuity contracts expose insurers to a wide range of risks, lapse risk being one of them. When policyholders’ lapse behavior differs from the assumptions used to hedge variable annuity contracts, the effectiveness of dynamic hedging strategies can be significantly impaired. By studying how the fee structure and surrender charges affect surrender incentives, we obtain new theoretical results on the optimal surrender region and use them to design a marketable contract that is never optimal to lapse.

Number of times cited according to CrossRef: 18

  • Andrea Molent, TAXATION OF A GMWB VARIABLE ANNUITY IN A STOCHASTIC INTEREST RATE MODEL, ASTIN Bulletin, 10.1017/asb.2020.29, 50, 3, (1001-1035), (2020).
    Crossref
  • Fabio Baione, Davide Biancalana, Paolo De Angelis, An application of Sigmoid and Double-Sigmoid functions for dynamic policyholder behaviour, Decisions in Economics and Finance, 10.1007/s10203-020-00279-7, (2020).
    Crossref
  • Christian Hilpert, The Effect of Risk Aversion and Loss Aversion on Equity‐Linked Life Insurance With Surrender Guarantees, Journal of Risk and Insurance, 10.1111/jori.12297, 87, 3, (665-687), (2019).
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    Crossref
  • Anne MacKay, Adriana Ocejo, Portfolio Optimization With a Guaranteed Minimum Maturity Benefit and Risk-Adjusted Fees, SSRN Electronic Journal, 10.2139/ssrn.3486858, (2019).
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  • Anna Rita Bacinello, Ivan Zoccolan, Variable annuities with a threshold fee: valuation, numerical implementation and comparative static analysis, Decisions in Economics and Finance, 10.1007/s10203-019-00255-w, (2019).
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  • Carole Bernard, Thorsten Moenig, Where Less Is More: Reducing Variable Annuity Fees to Benefit Policyholder and Insurer, Journal of Risk and Insurance, 10.1111/jori.12237, 86, 3, (761-782), (2018).
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  • Anna Rita Bacinello, Ivan Zoccolan, Variable Annuities with State-Dependent Fees, Mathematical and Statistical Methods for Actuarial Sciences and Finance, 10.1007/978-3-319-89824-7, (75-80), (2018).
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  • Denis-Alexandre Trottier, Frédéric Godin, Emmanuel Hamel, LOCAL HEDGING OF VARIABLE ANNUITIES IN THE PRESENCE OF BASIS RISK, ASTIN Bulletin, 10.1017/asb.2018.7, 48, 02, (611-646), (2018).
    Crossref
  • Michael A. Kouritzin, Anne MacKay, VIX-linked fees for GMWBs via explicit solution simulation methods, Insurance: Mathematics and Economics, 10.1016/j.insmatheco.2018.04.001, 81, (1-17), (2018).
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  • Fabio Baione, Davide Biancalana, Paolo De Angelis, Ivan Granito, Dynamic Policyholder Behavior and Surrender Option Evaluation for Life Insurance, Mathematical and Statistical Methods for Actuarial Sciences and Finance, 10.1007/978-3-319-89824-7, (81-85), (2018).
    Crossref
  • Zhenyu Cui, Runhuan Feng, Anne MacKay, Variable Annuities with VIX-Linked Fee Structure under a Heston-Type Stochastic Volatility Model, North American Actuarial Journal, 10.1080/10920277.2017.1307765, 21, 3, (458-483), (2017).
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  • Jiang Zhou, Lan Wu, The distribution of refracted Lévy processes with jumps having rational Laplace transforms, Journal of Applied Probability, 10.1017/jpr.2017.58, 54, 4, (1167-1192), (2017).
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  • Daniel Bauer, Jin Gao, Thorsten Moenig, Eric R. Ulm, Nan Zhu, Policyholder Exercise Behavior in Life Insurance: The State of Affairs, North American Actuarial Journal, 10.1080/10920277.2017.1314816, 21, 4, (485-501), (2017).
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  • Maciej Augustyniak, Mathieu Boudreault, Mitigating Interest Rate Risk in Variable Annuities: An Analysis of Hedging Effectiveness under Model Risk, North American Actuarial Journal, 10.1080/10920277.2017.1316210, 21, 4, (502-525), (2017).
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  • Thorsten Moenig, Nan Zhu, Lapse‐and‐Reentry in Variable Annuities, Journal of Risk and Insurance, 10.1111/jori.12171, 85, 4, (911-938), (2016).
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  • Maciej Augustyniak, Mitigating Interest Rate Risk in Variable Annuities: An Analysis of Hedging Effectiveness Under Model Risk, SSRN Electronic Journal, 10.2139/ssrn.2769927, (2016).
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