The Economic value of Insurance Conracts under Reselection

Specialeforsvar ved Monica Josefine Line Blair

Titel: The Economic Value of Insurance Contracts under Reselection

Abstract: Developments in the financial market have led to life-insurance companies offering their costumers the choice of reselection. When doing so, the companies need to calculate the economic value of an insurance contract, i.e., the value a policyholder transfers from a guaranteed benefits contract to a market rate contract. Determining the individual contributory share of the collective reserves is the challenging part of the calculation. The purpose of this thesis is to mathematically and legally discuss the circumstances of reselection. We analyze current relevant legislation and discuss if they form the basis for a fair calculation of the econo-mic value. We then move on to study the financing of the strength, as this is the key to a fair individualization of the collective reserve. By mathematically interpreting the laws we create a foundation for the desired discussions. We simplify the theoretical groundwork in two examples of payment streams, which we use to emphasize our key issues with the financing of the strength. After discussing different calculation methods for the economic value, we identify the existence of multiple fair calculation methods for the economic value. We discover how it is possible to mathematically distinguish between the strength related to the interest rate group and the risk group. Furthermore, we establish the interest rate related part of the strength financed by capital gains and the collective bonus respectively. As a consequence of our findings, we suggest that the legislation be changed so more than one method for calculating the economic value is legally allowed. Also, we conclude that the collective bonus cannot be fairly distributed if the financing of the strength is not taken into account. Hence to calculate a fair economic value of a policyholder’s contract when offering reselection, the companies must separate the strength into the three parts described above. 

 

Vejleder: Mogens Steffensen
Censor:   Jesper Olesen