The aim of this paper is to analyze both the term structure of interest and mortality rates role for evaluating a fair value of a life insurance business. In particular, a fair value accounting impact on reserve evaluations is discussed comparing a traditional deterministic model based on local rules for an Italian balance sheet calculation and a stochastic one based on a diffusion process for both mortality and financial risks. As proposed by IAS Board we will separate the embedded derivatives from their host contracts, so the fair value of a traditional life insurance contract would be expressed as the value of four components: the basic contract, the participation option, the option to annuitise and the surrender option. A numerical application to a traditional Italian life insurance policy is discussed.
On a Fair Value Model for Partecipating Life Insurance Policies / Baione, Fabio; DE ANGELIS, Paolo; Fortunati, A.. - In: INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS. - ISSN 1810-4967. - STAMPA. - 2:(2006), pp. 105-115.
On a Fair Value Model for Partecipating Life Insurance Policies
BAIONE, Fabio;DE ANGELIS, Paolo;
2006
Abstract
The aim of this paper is to analyze both the term structure of interest and mortality rates role for evaluating a fair value of a life insurance business. In particular, a fair value accounting impact on reserve evaluations is discussed comparing a traditional deterministic model based on local rules for an Italian balance sheet calculation and a stochastic one based on a diffusion process for both mortality and financial risks. As proposed by IAS Board we will separate the embedded derivatives from their host contracts, so the fair value of a traditional life insurance contract would be expressed as the value of four components: the basic contract, the participation option, the option to annuitise and the surrender option. A numerical application to a traditional Italian life insurance policy is discussed.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.