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Impact of Macroeconomic Variables on Initial Premiums in Variable Life Insurance with a Vector Error Correction Model
Journal of Insurance and Finance
2010, 21(3),
pp.3-32
Publisher : Korea Insurance Research Institute
Research Area : Business Management
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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This paper analyzes how first premiums in variable annuities and universal products respond to shocks to macroeconomic variables as well as each of their own variables. Then it decomposes the variance of their forecast errors caused by shocks given exogenously to the variables. Our end results in the paper are that following a temporary positive response, the first premiums in both variable annuities and universal continue to respond negatively to a shock to the interest rate, the so-called Korea's 5-year government bond yield, whereas they show a permanent positive response to the Korea Composite Stock Price Index (KOSPI). In addition, it follows that the first premiums in variable annuities shows a positive response to a shock to the unemployment rate, while those in variable universal does a negative response. The variance of forecast errors in variable annuities is greatly caused by a shock to the KOSPI and the interest rate. In contrast, the variance of forecast errors in variable universal is largely led to by a shock to the unemployment rate.
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