Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233759 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Insurance [ISSN:] 1539-6975 [Volume:] 88 [Issue:] 4 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2021 [Pages:] 971-1000
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
This paper assesses the risk of a mass lapse event in life insurance. The rarity of the event and the complexity of policyholder behavior make the risk assessment of such a scenario difficult. Using a simulation study, we evaluate how different estimation methods can assess the risk of this scenario, using panel data at the company level. We then use the best-performing method to estimate the probability distribution function of a mass cancellation event in the United States and Germany. We identify dependencies of the event on company and country characteristics, which have not been taken into account by regulating agencies. We also find that the current mass lapse scenario in Solvency II has no empirical foundation for the German market. We show that an empirically valid scenario leads to a significantly lower solvency capital requirement for the average German life insurer.
Subjects: 
dynamic peaks over threshold
extreme value theory
life insurance
mass cancellation
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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