German Life Insurance Research Articles

Zinsgarantien und Modellrisiko in Lebensversicherungen

German life insurance policies provide minimum interest rate guarantees. Usually, this guarantee is given in every single year. This type of contract poses a high risk on the insurer and restricts also the flexibility of the investment strategies. Therefore, new types of guarantees were developed, assuring for instance a certain minimum interest rate only at maturity of a contract. This considerably reduces the shortfall probability for insurance companies. In this paper, the interaction of different type of guarantees and the corresponding shortfall probabilities is investigated. We also study different types of investment strategies. In the investigation of shortfall probabilities, we develop a cutting-edge dynamic trading strategy with three variants: Type I, Type II, and Type III. Especially the matured trading strategy Type III yields low shortfall probabilities, and at the same time an exemplary distribution of maturity capital. Compared with the results of the well known CPPI strategy the new strategy of Type III shows a remarkable good performance. Contrary to the existing literature, jump diffusion processes are also used for the asset price models. Compared to classical models with geometric Brownian motion, this gives a considerable increase of shortfall probabilities. The results again demonstrate that in the literature dealing with this subject, the model risk is usually underestimated.

An Empirical Study of Firm Size and Competitiveness in German Life Insurance

Based on a purely rank-oriented approach, this empirical study analyzes to what extent superior firm size in German life industry generally translates into corporate advantages for the companies concerned. It turns out that while modest advantages with some criteria are measurable, any such benefits are usually outweighed by unquantifiable factors unrelated to firm size. Confining the study to a highly homogeneous subgroup of life insurers, however, reveals substantial corporate advantages in a number of areas, thereby confirming well-established theoretical reasoning.

Implicit options in life insurance contracts

Options in life insurance contracts are being offered more and more frequently. This is for reasons of competitiveness as well as (in particular under German legislation) for tax reasons. Up to now, such options were usually not taken into account when the policy was priced. Two very common options in German life insurance contracts are the lump sum option in deffered annuity coantracts and the flexible expiration option in endowment contracts. In Part 1, we quantify the value of the lump sum option within a Hull-White model framework and perform extensive sensitivity analysis with respect to parameters of the insurance contract, as well as capital market parameters. The underlying of this option is a portfolio of bonds. In Part 2, we will analyze the flexible expiration option.

International Expansion — A United Kingdom Perspective: A Discussion Paper

ABSTRACTThis paper looks at the reasons why a UK life insurance company would wish to consider expanding into an overseas market, the factors it ought to bear in mind when deciding upon which country or countries to enter and the entry routes open to a company wishing to expand overseas.By way of examples of overseas life insurance markets, the paper provides a detailed description of the German and Indian life insurance markets.

A New Test of Price Dispersion

Abstract Economists have been concerned with price dispersion for apparently homogeneous goods for a long time. Many models have been developed which explain price dispersion by imperfect consumer information about prices in the market. There are few empirical tests of these models. Moreover, these tests at most show that the observed price dispersion is consistent with the models; however, an alternative explanation of price dispersion is always that the goods sold are not homogeneous from the consumers' point of view but that there are quality differences which cannot be observed by the empirical economist. Since both models yield different welfare conclusions, it would be important to distinguish empirically between the two explanations. We use data from the German life insurance industry for tests of the two models. Our data support the equilibrium price dispersion model.

Regulation and efficiency in European insurance markets

European insurance markets Regulation and efficiency With a series of directives completed in 1994 the European Commission tried to open and harmonize national European insurance markets. This has led to considerable deregulation in several countries. This paper surveys pre‐1994 regulation in Germany and the UK and the Commission’s policy. It argues that it is unlikely that the policy will have a significant impact on direct international competition between European insurance markets, until there is standardization of insurance law. However, the tightly regulated markets will become more like the loosely regulated UK market. The paper evaluates this outcome and concludes that the European Commission’s policy may thereby have improved the welfare of insurance buyers in the previously highly regulated countries such as Germany. The paper also uses efficiency‐frontier estimation to compare the dispersion of firm efficiencies in the German and British life insurance market. The results support the hypothesis that tighter solvency regulation allows the survival of a larger proportion of higher‐cost firms. — Ray Rees and Ekkehard Kessner

Life insurance and society — pleading for a social history of German life insurance

Life insurance and society — pleading for a social history of German life insurance

Neue Grundlagen für die Berufsunfähigkeitsversicherung als Zusatzversicherung zur Kapital- und Rentenversicherung

Till now, cover for the disability risk has not usually been provided by the German Life Offices. As an increase in the demand for such coverage is to be expected, the „Verband der Deutschen Lebensversicherungsunternehmen“ — the Association of German life insurance institutions — appointed a special committee to examine the existing experiences and to develop new bases of calculation. This Committee has analysed material from Germany and other countries. Because of the differences with regard to the definition of disability, the practice with regard to disablement, the insured persons, the types of disability benefits and the economic conditions, a great range of variation in the rates of disablement was observed. Generally, the rates of disablement increase with age much more under conditions as they are found in social insurance systems than in the case of individual life insurance. Moreover, during an economic boom the rates of disablement are noticeably lower than in periods of unemployment. In consideration of the conditions of individual life insurance in Germany the following disablement rates are recommended: During the present economic conditions of full-employment these rates guarantee a high degree of security and will also be sufficient after a diminution of the present economic boom, especially if the rates of recovery are excluded from the bases of calculation and if instead of the select death rates for invalids the aggregate rates are used. For medium entry ages the premium reserve calculated on the recommended disablement rates has the magnitude of a yearly premium. As, moreover, disability insurance is a risk insurance, no surrender values should be given to active persons in case of cancellation. During the present economic situation a profit may be expected also on the new bases of calculation. Therefore a distribution of profits is advisable. As a part of the realised profit will be needed in periods of increasing disablement rates, the profit should be cautiously distributed and to a certain extent with a time lag (bonus).

The Condition and Progress of German Life Insurance Companies in the Year 1881

The Condition and Progress of German Life Insurance Companies in the Year 1881

The Condition and Progress of German Life Insurance Companies in the Year 1873

The progress of life insurance in Germany in the year 1873 was far greater than could have been anticipated from the course of events during the year. For at a time of violent reaction, such as Germany and Austria experienced in the past year, succeeding a period during which mercantile speculations had been engaged in with such frantic eagerness by all classes of the community, we should not have expected to find men either willing or able to give that calm and self-denying consideration to the future, upon which life insurance depends. With the necessaries of life at exorbitant prices, it was natural to suppose that there would be a considerable diminution in the number of those who, after meeting the claims of the day, would be able to provide for the future. While the general state of society thus led to the conclusion that there would be a diminution in the number of insurances, there was also reason to fear that the mortality would be greatly increased through the recent outbreak of cholera, which extended over a large district, and held its ground very firmly for some time. In both respects, the returns for 1873 were more favourable than we expected; and this furnishes another proof of the fact that, in those parts of central Europe from which our returns are derived, life insurance has not yet become so general, that all the occurrences of domestic and social life, or even events involving important changes, have any distinct influence upon its development. It cannot be denied that in Germany, Austria, and Switzerland, life insurance is not nearly so well understood as in Great Britain and the United States.