Journal of Insurance and Finance 2021 KCI Impact Factor : 0.67

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pISSN : 2384-3209

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2013, Vol.24, No.3

  • 1.

    Bayesian Analysis of Reserving Minimum Guarantees in Variable Annuities

    Byoung Hark Yoo , Bangwon Ko , Hyuk-Sung Kwon | 2013, 24(3) | pp.3~26 | number of Cited : 4
    Abstract PDF
    In this paper, we analyze the effect of stochastic model selection for stock return processes on minimum guarantee reserves. Usually it is difficult to reflect uncertainty about estimated guarantee reserves using the method of maximum likelihood estimation adopted by the previous research. However, under the Bayesian approach, the uncertainty can be easily incorporated into the models and it is possible to make statistical inferences about the differences between the guarantee reserves under the LN model and RSLN2 model. As a result, we find that the model selection has a substantial impact on the GMAB reserves. Moreover, unlike the previous research, we also investigate the effect of the initial regime state under the RSLN2 model on the minimum guarantee reserves. The results show that the impact can be significant if the GMAB options have maturities of less than 5 years.
  • 2.

    The Analysis of Inter-industrial Linkages of Insurance Industry

    Jeong, Kiho | 2013, 24(3) | pp.27~53 | number of Cited : 1
    Abstract PDF
    Using the annual input-output data for the 2005~2009 period, this study analysed the characteristics of the insurance industry in the national economy. We classified the insurance industry into life insurance and non-life insurance. Four linkage measures based on the input-output model were used for the analysis, including backward and forward measures of total and net linkages. The main results are as follows: First, depending on the linkage measures, the life insurance industry and nonlife insurance industry are shown to have strong production inducement effects. This result is in contrast to the existing literature which argues that the service industry generally has weak production inducement effects. Second, the life insurance industry has more backward net linkages than the industry median and furthermore is ranked first among service industries. This means that the insurance industry is one of the key industries in the national economy if we consider the backward production inducement effect. Non-life insurance has a greater forward linkage effect than the industry median in both total and net measurements, meaning that it has a strong forward production inducement effect.
  • 3.

    A Study on Consumer Choice between Fee Structures of Variable Annuity

    Ick Jin | 2013, 24(3) | pp.55~91 | number of Cited : 1
    Abstract PDF
    This paper investigates consumer choice between fee schemes of a variable annuity (VA). A consumer considering a purchase of a VA would evaluate how each fee scheme affects his or her expected utility. Assuming a risk-averse consumer, this paper intends to be a complement to previous studies which assume a risk-neutral consumer. According to simulation results, the back-end loaded fee of VAs appears to be relatively high compared with that of competing goods such as mutual funds. Requests for lower sales fees from consumers and regulators may continue until differential services can justify the gap. The portion of investment risk that is imposed on the consumer would be reduced under the back-end loading scheme. Attracted to the risk-sharing feature, the consumer may be willing to pay a higher sales fee. In this regard, the regulator could induce a more desirable outcome by expanding consumer choice rather than introducing indirect price regulation. Insurance companies would be better off diversifying sales fee schemes in order to explore additional demands on VAs from consumers with diverse risk appetites.
  • 4.

    A Comparison Study on Methods of Assessing Longevity Risk

    Sejoong Kim | 2013, 24(3) | pp.93~121 | number of Cited : 5
    Abstract PDF
    This paper compared three methods of assessing the longevity risk of life insurers, which are the shock approach, VaR approach and stressed trend approach, using Korean mortality data. To consider model risk, we applied four stochastic mortality models (Lee-Carter model, Currie model, CBD model, CBD2 model) to each method. The longevity risk calculations using the shock approach did not vary considerably with mortality models; however, the figures increased consistently with age. The longevity risk calculations using the VaR approach were lower than or about the same as those using the shock approach; however, figures vary considerably across mortality models. The VaR approach would have a significant mortality risk. The results from the stress trend approach, in the 99.5 percentile, show a similar trend with those from the VaR approach; however, it overestimates longevity risk more than the VaR approach. A confidence level from 95 to 99 would be enough to equate the results from the stress trend approach to those from the shock approach. Meanwhile, lower interest rates increased longevity risk in life insurers. These pros and cons of the three methods should be considered when introducing longevity risk to Korean solvency regulation.