Is fair pricing possible? an analysis of participating life insurance portfolios

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<title>Is fair pricing possible? an analysis of participating life insurance portfolios</title>
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<name type="personal" usage="primary" xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20190008594">
<namePart>Orozco García, Carolina</namePart>
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<namePart>Schmeiser, Hato</namePart>
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<abstract displayLabel="Summary">Pooling individual customers with different inception dates into a single legal entity may generate intergenerational subsidies that are accentuated when the insurer has limited liability. This article aims to investigate whether an insurer can charge fair premiums while simultaneously ensuring identical levels of default riskmeasured by the value of the default put option ratio for all generations. The decision variables for achieving these goals are asset allocation and the amount of the insurer's equity capital. We propose an accounting framework where the insurer controls for insolvency positions annually after the first contract is issued. Additionally, a run-off framework is developed where the insurer does not declare bankruptcy in case of an insolvency, but instead stops issuing new policies and runs the company until the assets are exhausted or the last policyholder is paid. We find that intergenerational subsidies and different levels of default risk per generation cannot be avoided whenever we face a positive default risk.</abstract>
<note type="statement of responsibility">Carolina Orozco García, Hato Schmeiser</note>
<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080583972">
<topic>Cartera de seguros</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080570590">
<topic>Seguro de vida</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080586294">
<topic>Mercado de seguros</topic>
</subject>
<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080619640">
<topic>Incumplimiento de contrato</topic>
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<title>The Journal of risk and insurance</title>
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<publisher>Nueva York : The American Risk and Insurance Association, 1964-</publisher>
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<identifier type="issn">0022-4367</identifier>
<identifier type="local">MAP20077000727</identifier>
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<text>03/06/2019 Volumen 86 Número 2 - junio 2019 , p. 521-560</text>
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