Aggregate lapsation risk

IF 10.4 1区 经济学 Q1 BUSINESS, FINANCE Journal of Financial Economics Pub Date : 2024-03-18 DOI:10.1016/j.jfineco.2024.103819
Ralph S.J. Koijen , Hae Kang Lee , Stijn Van Nieuwerburgh
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Abstract

We study aggregate lapsation risk in the life insurance sector. We construct two lapsation risk factors that explain a large fraction of the common variation in lapse rates of the 30 largest life insurance companies. The first is a cyclical factor that is positively correlated with credit spreads and unemployment, while the second factor is a trend factor that correlates with the level of interest rates. Using a novel policy-level database from a large life insurer, we examine the heterogeneity in risk factor exposures based on policy and policyholder characteristics. Young policyholders with higher health risk in low-income areas are more likely to lapse their policies during economic downturns. We explore the implications for hedging and valuation of life insurance contracts. Ignoring aggregate lapsation risk results in mispricing of life insurance policies. The calibrated model points to overpricing on average. In the cross-section, young, low-income, and high-health risk households face higher effective mark-ups than the old, high-income, and healthy.

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总失效风险
我们研究了人寿保险行业的总体失效风险。我们构建了两个失效风险因子,它们可以解释 30 家最大寿险公司失效率的大部分共同变化。第一个因子是与信贷利差和失业率正相关的周期性因子,第二个因子是与利率水平相关的趋势性因子。我们利用一家大型人寿保险公司的新型保单级数据库,研究了基于保单和投保人特征的风险因素暴露的异质性。低收入地区健康风险较高的年轻投保人更有可能在经济衰退期间保单失效。我们探讨了这对人寿保险合同对冲和估值的影响。忽略总体失效风险会导致寿险保单定价错误。校准模型显示平均定价过高。在横截面上,年轻、低收入和高健康风险家庭比年老、高收入和健康家庭面临更高的有效加价。
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来源期刊
CiteScore
15.80
自引率
4.50%
发文量
192
审稿时长
37 days
期刊介绍: The Journal of Financial Economics provides a specialized forum for the publication of research in the area of financial economics and the theory of the firm, placing primary emphasis on the highest quality analytical, empirical, and clinical contributions in the following major areas: capital markets, financial institutions, corporate finance, corporate governance, and the economics of organizations.
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