Prof. Enrico Biffis (Imperial College, Londra)
Insurance contract design and endogenous frailty
Abstract
We study how the design of options and guarantees shapes the exposure to mortality/longevity risk in life insurance contracts. We develop a model of selective withdrawals driven by exogenous and endogenous factors, offering insights into traditional approaches to the analysis of surrender guarantees and dynamic adverse selection. We show how the mortality risk profile of policyholders can be represented in terms of a frailty process driven by the relative attractiveness of different contract benefits in different states of the world. We then outline some applications to pricing and optimal contract design in traditional contracts and variable annuities. This is joint work with D. Benedetti.