Profit Margin for Unit-Linked policies – University of Copenhagen

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Profit Margin for Unit-Linked policies

Specialeforsvar ved Nikoline B. Nyeland Ehlers 

Titel: Profit Margin for Unit-Linked policies

 

Abstract: This thesis studies the segregation of Profit Margin in Unit-Linked policies. Profit Margin is an account in the balance scheme and is defined as the expected present value of future profit paid to the owners of the company. We model profit as an expense paid to the owners of the insurance company and include these profit payments in the policyholder's reserve. The focus is on the linear profit rate model as a function of the policyholder's reserve, which has especially nice properties. For Unit-Linked policies we differentiate between the prospective reserve and the retrospective reserve, which we interpret as the account. One of the main objectives is to show that the prospective reserve and the \textit{account} are equal at all times, meaning that the value of the account at all times can cover the present value of all future liabilities. The other main objective is to show that the policyholder's reserve can be decomposed into a part which reflects the present value of the future profit payments to the owners of the company, the Profit Margin, and a part which reflects the present value of the future payments to the policyholder. The decomposition is studied for various insurance designs, including different levels of insurance risk, and for various assumptions about the financial market model. A Monte Carlo simulation study is done for the whole-life annuity under the Black-Scholes market 

 

 

Vejledere:  Mogens Steffensen / Thomas Møller, PFA
Censor:      Mikkel Jarbøl, Norli Pension