Multiple shadow insurance activities and life insurance policyholder protection

•Equity and liabilities of a life insurer are evaluated by a barrier option model.•Diversification produces superior performance and helps policyholder protection.•Increasing the guaranteed rate contributes to insurance stability.•Increasing the participation rate adversely affects insurance stabili...

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Bibliographic Details
Published inFinance research letters Vol. 38; p. 101524
Main Authors Chen, Shi, Yao, Wenyu, Huang, Fu-Wei
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.01.2021
Subjects
Barrier option
Insurer interest margin
Shadow insurance
Barrier option
G28
Insurer interest margin
Shadow insurance
G21
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Summary:•Equity and liabilities of a life insurer are evaluated by a barrier option model.•Diversification produces superior performance and helps policyholder protection.•Increasing the guaranteed rate contributes to insurance stability.•Increasing the participation rate adversely affects insurance stability. This paper develops a contingent claim model to evaluate the equity and liabilities of a life insurer who operates multiple shadow insurance activities specified as wealth management products and entrusted loans. We show that multiple shadow insurance operations by the insurer produce superior return performance and help policyholder protection. Increasing the guaranteed rate at an increased optimal margin contributes to insurance stability whereas increasing the participation rate at a decreased optimal margin adversely affects insurance stability.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2020.101524