Pricing and solvency of value-maximizing life annuity providers

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<title>Pricing and solvency of value-maximizing life annuity providers</title>
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<namePart>Nirmalendran, Maathumai</namePart>
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<abstract displayLabel="Summary">This paper provides a detailed quantitative assessment of the impact of capital and default probability on product pricing and shareholder value for a life insurer providing life annuities. A multi-period cash flow model, allowing for stochastic mortality and asset returns, imperfectly elastic product demand, as well as frictional costs, is used to derive value-maximizing capital and pricing strategies for a range of one-year default probability levels reflecting differences in regulatory regimes including Solvency II. The model is calibrated using realistic assumptions. The sensitivity of results is assessed. The results show that value-maximizing life insurers should target higher solvency levels than the Solvency II regulatory one-year 99.5% probability under assumptions of reasonable levels of policyholder's aversion to insolvency risk. Even in the case of less restrictive solvency probabilities, policyholder price elasticity and solvency preferences are shown to be important factors for a life insurer's value-maximizing strategy.</abstract>
<note type="statement of responsibility">Maathumai Nirmalendran, Michael Sherris, Katja Hanewald</note>
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<title>Astin bulletin</title>
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<publisher>Belgium : ASTIN and AFIR Sections of the International Actuarial Association</publisher>
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<identifier type="issn">0515-0361</identifier>
<identifier type="local">MAP20077000420</identifier>
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<text>06/01/2014 Volumen 44 Número 1 - enero 2014 </text>
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