Implementation of future management actions and effects on liability management in Danish life insurance
Specialeforsvar ved Sebastian Kjellerup Have
Titel:Implementation of future management actions and effects on liability management in Danish life insurance
Abstract: This thesis investigates the effects of the implementation of future management actions (FMAs) on the solvency capital requirements within the Danish life insurance setup. The thesis aims to evaluate the FMAs effect on risk within life insurance and investigate what the main considerations are before implementing them.
In the first part of the thesis, a definition of FMAs is presented and analyzed. Non-linearities within the FMAs eliminate an analytical approach, and stochastic modelling is desired. Financial risk, through stock investment, and insurance risk, through dynamic policyholder behavior (PHB), are defined as the two important risk factors to model the FMAs effciency against. In the second part, the necessary theoretical foundation for the stochastic modelling is constructed. Danish life insurance mathematics, best estimate risk factors and numerical approximation lay this foundation. The individual choice of FMAs complicates certain elements within the foundation, thus increasing the complexity within the model.
In the third part, the impact of FMAs is modelled through case studies of average rate life insurance products. The FMAs are constructed within the bonus strategy, investment strategy and surrender option. The FMAs prove consistent in lowering financial risk, but when studying the effect of an FMA on both risk factors together, the desired reduction of insurance risk isn't always achieved. The implementation of FMAs is thus not risk-free as backlashes may occur.
Vejleder: Mogens Steffensen
Censor: Magnus Tor Ry Hessler, Danica Pension