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Guaranteed minimum surrender benefits in variable annuities: the impact of regulator-imposed guarantees

Content Provider	Springer Nature Link
Author	Kling, Alexander Ruez, Frederik Ruß, Jochen
Copyright Year	2017
Abstract	We analyze the impact of regulator-imposed minimum surrender benefits on variable annuities with a guaranteed minimum accumulation benefit (GMAB) rider. Based on recent discussions in the German market, we consider different models according to which these guaranteed minimum surrender benefits (GMSB) are determined: A minimum surrender benefit given by the present value of the GMAB calculated using market interest rates, the present value of the GMAB calculated using some technical rate of interest, and the market-consistent value of the GMAB. We look at the case where the GMSB is introduced before the contract is sold and considered in the pricing of the GMAB rider. We also consider the case when the GMSB is imposed after the contract has been sold and analyze the impact on the technical provisions and capital requirements of already existing contracts. Finally, we analyze how our results change in the presence of a secondary market. Our results show that (if considered in the pricing of the contract) a GMSB can significantly affect the fair guarantee charge of variable annuities. We also find a significant impact on the technical provisions and capital requirements of already existing contracts. Finally, our results indicate that a secondary market adversely affects the insurer’s profitability but reduces the impact of the considered GMSBs on the insurers.
Starting Page	353
Ending Page	377
Page Count	25
File Format	PDF
ISSN	21909733
Journal	European Actuarial Journal
Volume Number	7
Issue Number	2
e-ISSN	21909741
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2017-06-21
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Variable annuities Guaranteed minimum accumulation benefit Guaranteed minimum surrender benefit Pricing Capital requirements market Quantitative Finance Financial Services Applications of Mathematics Game Theory, Economics, Social and Behav. Sciences
Content Type	Text
Resource Type	Article
Subject	Statistics and Probability Economics and Econometrics Statistics, Probability and Uncertainty

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