Essays on Interest Rate Risk Management for Participating Life Insurance Products

Insurance companies are currently facing many challenges. One of these challenges is the current low-interest phase, which has already lasted for several years. But the high fluctuation of interest rates also represents a fundamental financial risk for insurance companies. In general interest rate risk has a major impact on the solvency of insurance companies. In particular, the actuarial reserve of life insurance companies, whose portfolios consist of policies with long maturities that promise a relatively high guaranteed return, is affected by interest rate risk.

The subject of this work are life insurance companies who provide participating life insurance contracts. Especially German life insurer have a huge amount of long term contracts in their portfolio, such that they are exposed to potential risks on the financial stability, in particular interest rate risk i.e. losses due to interest rate fluctuations. Life insurance contracts with (innovative) guarantees, which are of particular relevance for life insurance companies due to the ongoing low-interest phase and the high fluctuations on the financial markets as well as the regulatory requirements from Solvency II, are investigated in this thesis. Those participating life insurance contracts are contracts where the insured participates in the return of the insurers asset portfolio with her initially paid premium. In addition, a minimum return on her premium is often guaranteed. A distinction is made between terminal and cliquet-style guarantees, whereby terminal guarantees only take into account the return at the contract maturity, while cliquet-style guarantees do it regularly at specific intervals (e.g. annually).

The aim of this thesis is to examine participating life insurance products with regard to their exposure to interest rate risk. In addition to the question of the optimal design of these products, this thesis also deals with the question of how an appropriate choice of different products can hedge against interest rate risk. Furthermore, the regulatory basis for hedging interest rate risks in the EU given by Solvency II will be examined.



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