A Study on the Valuation of Interest Rate Guarantees under IFRS with Dynamic Lapse Rates

OUH, CHANGSU; 박규서

doi:10.23842/jif.2016.27.1.003

If IFRS4 Phase II is adopted, various options and guarantees embedded in insurance contracts should be valued in the light of policyholder behavior. In this paper, the research on the valuation of interest rate guarantees was performed focusing on guaranteed minimum interest benefit(GMIB) and guaranteed minimum surrender benefit(GMSB) embedded in interest sensitive whole life products with dynamic lapse rate models. The research shows that higher guaranteed minimum interest rates for GMIB and pricing interest rates for GMSB result in higher values of GMIB and GMSB, respectively. When applying dynamic lapse rates, GMIB and GMSB are lower than those with basic lapse rates. This is due to the dynamic lapse assumption that lapse rates decrease when guaranteed account value is greater than actual account value. If dynamic lapse rates decrease, GMIB and GMSB decrease, since the financial burden will be deferred to the future period. The sensitivity analysis for crediting interest rates shows that lower crediting interest rates result in higher values of GMIB and GMSB. In addition, lower mortality rates lead to higher GMIB and GMSB. The analysis results imply that GMIB and GMSB for the existing old products with high guaranteed minimum interest rates and pricing interest rates could be financially burdensome to insurers in a low interest rate environment and under IFRS4 Phase Ⅱ.

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* 2021년 이후 발행 논문의 참고문헌은 현재 구축 중입니다.

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