The Bankruptcy cost of the life insurance industry under regulatory forbearance : an embedded option approach

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      <subfield code="a">Yang, Shang-Yin</subfield>
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      <subfield code="a">The Bankruptcy cost of the life insurance industry under regulatory forbearance</subfield>
      <subfield code="b">: an embedded option approach</subfield>
      <subfield code="c">Shang-Yin Yang, Ya-Wen Hwang, Shih-Chieh Bill Chang</subfield>
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      <subfield code="a">In this study the Taiwan Insurance Guaranty Fund (TIGF) is introduced to investigate the ex ante assessment insurance guaranty scheme. We study the bankruptcy cost when a financially troubled life insurer is taken over by TIGF. The pricing formula of the fair premium of TIGF incorporating the regulatory forbearance is derived. The embedded Parisian option due to regulatory forbearance on fair premiums is investigated. The numerical results show that leverage ratio, asset volatility, grace period, and intervention criterion influence the default costs. Asset volatility has a significant effect on the default option, while leverage ratio is shown to aggravate the negative influence from the volatility of risky asset. Furthermore, the numerical analysis concludes that the premium for the insurance guaranty fund is risk sensitive and that a risk-based premium scheme could be implemented, hence, to ease the moral hazard.</subfield>
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      <subfield code="w">MAP20077000239</subfield>
      <subfield code="t">North American actuarial journal</subfield>
      <subfield code="d">Schaumburg : Society of Actuaries, 1997-</subfield>
      <subfield code="x">1092-0277</subfield>
      <subfield code="g">03/12/2012 Tomo 16 Número 4  - 2012 </subfield>
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