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- Title
The Effect of Secondary Markets on Equity-Linked Life Insurance With Surrender Guarantees.
- Authors
Hilpert, Christian; Li, Jing; Szimayer, Alexander
- Abstract
Many equity-linked life insurance products offer the possibility to surrender policies prematurely. Secondary markets for policies with surrender guarantees influence both policyholders and insurers. We show that secondary markets lead to a gap in policy value between insurer and policyholder. Insurers increase premiums to adjust for higher surrender rates of customers and optimized surrender behavior by investors acquiring the policies on secondary markets. Hence, the existence of secondary markets is not necessarily profitable for the primary policyholders. The result depends on the demand for and the supply of the contracts brought to the secondary markets.
- Subjects
VARIABLE life insurance policies; LIFE insurance -- Lapses &; surrenders; INSURANCE policies; POLICYHOLDERS; INSURANCE companies; SECONDARY markets
- Publication
Journal of Risk & Insurance, 2014, Vol 81, Issue 4, p943
- ISSN
0022-4367
- Publication type
Article
- DOI
10.1111/j.1539-6975.2013.12003.x