During the Accumulation Period the Risk Analysis of Interest Sensitive Annuity under Different Scenarios
Date Issued
2006
Date
2006
Author(s)
Chen, Shiuan-Chung
DOI
zh-TW
Abstract
Since 2001, the interest rate in Taiwan has been still at a low level. In order to stimulate the sales, Insurance companies sold a series of interest sensitive products. The interest sensitive annuity is the first hit of this kind of products. And as the awareness of pension fund getting increased, insurance companies should make more efforts on the risk management of interest sensitive annuities.
This study tries to discuss the impact under different liability structures, credit rate strategies, asset portfolios, initial equity-to-asset ratio, and foreign and domestic long-term interest rate levels. The simulation divides into two parts. The first part is scenario analysis based on two insurance companies which sold the most interest sensitive annuities in 2004. And the second part is stress testing. The observe factors are included the insolvency probability, RBC ratio, return on equity…etc.
Based on our assumption, the conclusion as following:
1. When the liability structure contains higher percentages of interest sensitive annuities, the insurance company needs higher initial equity-to-asset ratio.
2. The asset portfolio contains more percentages of bond will increase the risk of early surrender and the percentages of insolvency caused by early surrender. The insurance company which contains more percentages interest sensitive annuities should be aware of the probability that cannot afford the credit rate and the treat of early surrender.
3. Because the credit rate floats with two year saving deposit rate, the interest sensitive annuity will cancel the opportunity of earning higher return and cannot improve the interest spread loss effectively.
4. The insurance company should not promise prohibitive credit rate that they cannot afford, or the intreset sensitive annuity may boost the market shares but harm the health of insurance company.
5. When insurance company has sufficient liquidity, although dropping the credit rate will generate most early surrender, it becomes one of the companies’ usable strategies.
6. Compared with other interest sensitive annuity products, it is more dangerous when the company runs the product which is regulated the credit rate’s lower bound as two year saving deposit rate average and upper bound as ten year bond yield.
7. When the domestic long-term interest rate keeps at low level and foreign interest rate level remains at high. Early surrender will increase earnings under the prerequisite of not redeeming the foreign investment.
Subjects
利率變動型年金
資產負債管理
interest sensitive annuity
ALM
Type
thesis
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