A Study on Life Insurer's Approaches Determiningthe Assumed Interest Rate

Seungryul Ma; 박상범

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Journal of Insurance and Finance

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pISSN : 2384-3209

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A Study on Life Insurer's Approaches Determiningthe Assumed Interest Rate

Journal of Insurance and Finance

2004, 15(3), pp.3-29
Publisher : Korea Insurance Research Institute
Research Area : Business Management

Seungryul Ma ¹ , 박상범 ²

¹ 대구대학교
² 동서대학교

ABSTRACT

If a market interest rate that is in an unstable time series is used as a reference interest rate to calculate the assumed interest rate, life insurers cannot avoid facing interest risk due to the difficulties of forecasting future long-term interest rates. Thus, it is necessary to determine an alternative method to calculate the assumed interest rate. In this study, we investigate a new method to calculate the assumed interest rate based on the average of the time series of returns on total assets of life insurers. The trend of the time series of returns on total assets of life insurers is stable after April 2004, when there was rapid systematicchange. Also, the size of variance of the returns on total assets of life insurers is about 50 % of that of the market interestrate. Therefore, we can tell that the return on total assets is better than the market interest rate as a reference interest rate in reducing the risk caused by determining the assumed interest rate.
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