Life and long-term care insurance : valuation and product design

Abstract

This dissertation is set in the context of life and long-term care (LTC) insurance and focuses on the valuation and the design of related products, each concentrating on a separate matter. For instance, innovative retirement products incorporating components of annuities and / or of the resurrected so-called tontines are considered. For their valuation, besides the required pricing by the insurer, the utility assessment from the customer’s perspective is also included, where longevity risk is explicitly taken into account as one of the major uncertainty factors in life insurance. Completely new product proposals are also submitted here like the antine, a combination of an annuity and a tontine, or the unit-linked tontine. Moreover, the payment structures are determined, so that the individual’s benefit is optimized. In addition, (fair) surplus participating contracts are addressed which are evaluated in a market-consistent manner and again under longevity risk. Heterogeneity between the policyholders is factored in when stipulating the contracts’ payouts. Regarding LTC insurance, care options embedded in policies and their intrinsic qualities are examined. They are priced not only in an actuarial way but also based on the policyholder’s utility. Furthermore, the product parameters are identified, so that the contract is concluded.