Pricing of Renewable Term Life Products —An Analysis from Microeconomic and Financial Engineering Perspectives

Taizo Ueda , Japan

As the variety of life insurance products expands, life insurers face a growing risk stemming from the behavior of policyholders. For example, healthy policyholders are prone to withdraw and enter less expensive new contracts, while unhealthy policyholders tend to stay with their present contracts. This adverse selection risk emerges clearly in renewable term life insurance, where premiums increase in stages.Thus in setting premiums for renewable term life insurance, I need to estimate the average death rate of remaining policyholders in the future while considering policyholders’ price preferences. To estimate the fair premium rate, I use tools from the world of practical finance—financial engineering theory, and a prepayment risk model for housing loans and deposit savings.My research results are applicable to new product development and stress tests.
Date: 2 June - Time: 8:30 to 10:00 - Room: 341
Theme: 9.A. Various topics