New Insurance Findings Has Been Reported by Investigators at Sun Yat-sen University (Surrender Contagion In Life Insurance): Insurance

2023 MAR 17 (NewsRx) -- By a News Reporter-Staff News Editor at NewsRx Policy and Law Daily -- Investigators publish new report on Insurance. According to news reporting out of Guangzhou, People’s Republic of China, by NewsRx editors, research stated, “Modern life insurance policies embed a surrender option that entitles policyholders to terminate their policy early for its cash value. Mass surrenders-spiking surrenders of life insurance policies within a short period-are widely documented prior to many life insurer failures, but their impacts on insurers are rarely quantified.”

Our news journalists obtained a quote from the research from Sun Yat-sen University, “This paper builds a model of mass surrenders in a heterogeneous pool consisting of a minority of financially guided policyholders who make rational surrender decisions and a majority of individual policyholders who are subject to herd. By revising the self-excitation in the Hawkes pro-cess to a contingent event-accumulation-excitation, we introduce a history-dependent surrender process for the individuals whose contagious behavior can be triggered contingent on past surrenders becom-ing salient. We then incorporate it into a life insurance pricing framework and study mass surrenders’ impacts on contract valuation and default risk of the insurer, allowing for its structural default under regulatory solvency intervention. Our numerical results show that while contagion aligns individual poli-cyholders’ surrender behavior with the optimal surrender of financially guided ones, it jeopardizes their financial positions in favor of equity holders. Surprisingly, surrender contagion only mildly enlarges an insurer’s bankruptcy rate, which is not driven by strict solvency regulation.”

According to the news editors, the research concluded: “Despite its public perception of posing a significant risk to insurers as similar to a bank run, surrender contagion does not critically threaten insurers’ solvency: To prevent insurers’ bankruptcies, their investment riskiness and leverage pose more of a concern to regulators.(.”

This research has been peer-reviewed.

For more information on this research see: Surrender Contagion In Life Insurance. European Journal of Operational Research, 2023;305(3):1465-1479. European Journal of Operational Research can be contacted at: Elsevier, Radarweg 29, 1043 Nx Amsterdam, Netherlands. (Elsevier - www.elsevier.com; European Journal of Operational Research - http://www.journals.elsevier.com/european-journal-of-operational-research/)

Our news journalists report that additional information may be obtained by contacting Christian Hilpert, Sun Yat-sen University, Lingnan College, Xingang Xi Rd 135, Guangzhou 510275, People’s Republic of China. Additional authors for this research include Chunli Cheng, Aidin Miri Lavasani and Mick Schaefer.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1016/j.ejor.2022.07.009. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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