Statutory financial reporting for variable annuity guaranteed death benefits: Market practice, mathematical modeling and computation

Runhuan Feng, Huaxiong Huang

Research output: Contribution to journalArticlepeer-review

Abstract

As more regulatory reporting requirements for equity-linked insurance move towards dependence on stochastic approaches, insurance companies are experiencing increasing difficulty with detailed forecasting and more accurate risk assessment based on Monte Carlo simulations. While there is vast literature on pricing and valuations of various equity-linked insurance products, very few have focused on the challenges of financial reporting for regulatory requirement and internal risk management. Most insurers use either simulation-based spreadsheet calculations or employ third-party vendor software packages. We intend to use a basic variable annuity death benefit as a model example to decipher the common mathematical structure of US statutory financial reporting. We shall demonstrate that alternative deterministic algorithms such as partial differential equation (PDE) methods can also be used in financial reporting, and that a fully quantified model allows us to compare alternatives of risk metrics for financial reporting.

Original languageEnglish (US)
Pages (from-to)54-64
Number of pages11
JournalInsurance: Mathematics and Economics
Volume67
DOIs
StatePublished - Mar 1 2016

Keywords

  • Aggregate model
  • Guaranteed minimum death benefit
  • Individual model
  • Numerical PDE methods
  • Risk measures
  • Running supremum
  • Statutory financial reporting

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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