2nd Workshop of the Freiburg-Strasbourg Research Group on Financial and Actuarial Mathematics

A Workshop of a FRIAS and the Strasbourg Institute for Advanced Studies (USIAS) Research Group.

Invited speakers

14:00 Rudi Zagst, TU Munich
Pricing of Variable Annuities: Incorporating Policy Behaviour

15:00 Laura Ballotta, Cass Business School, London
Fair valuation of life insurance contracts with minimum guarantee

Abstract Rudi Zagst: Pricing of Variable Annuities: Incorporating Policy Behaviour.

Variable annuities represent certain unit-linked life insurance products offering different types of protection commonly referred to as guaranteed minimum benefits (GMXBs). They are designed for the increasing demand of the customers for private pension provision. We propose a framework for the pricing of variable annuities with guaranteed minimum repayments at maturity and in case of the insured’s death. If the policyholder prematurely surrenders this contract, his right of refund is restriced to the current value of the fund account reduced by the prevailing surrender fee. For the financial market and the mortality model an affine linear setting is chosen. For the surrender model a Cox process is deployed whose intensity is given by a deterministic function (s-curve) with stochastic inputs of the financial market. Hence, the policyholders’ surrender behavior depends on the performance of the financial market and is stochastic. The presented pricing framework allows for an incorporation of the so-called interest-rate, moneyness, and emergency-fund hypothesis and is based on suitable closed-form approximations.

Joint work with: B. Brunner, M. Escobar, M. Krayzler, F. Ramsauer and D. Saunders

Abstract Laura Ballotta: Fair Valuation of Life Insurance Contracts with Minimum Guarantee.

In this talk we focus on the challenges in pricing and reserving variable annuity contracts, such as participating contracts typically sold in the UK insurance market. Emphasis is on model error and impact on both the market consistent value of these policies and their associated capital requirements. A special mention is given to Guaranteed Annuity Options and the Equitable Life debacle