Band 6, Heft 2

Some consumption goods, such as housing, involve long-term commitments and their levels of consumption can only be altered with substantial transaction costs. Even though the commitment effect on risk preferences, portfolio choice, and asset prices has been studied, little research has been conducted on its effect on insurance demand. In this paper, we propose a two-stage model to investigate the optimal demand for insurance by agents who derive utility from the consumption of two goods, an easily adjustable good (food) and a commitment good (housing). Our numerical analysis supports the prediction by Chetty and Szeidl (2007) that commitments help rationalize the high demand for insurance against moderate losses. Moreover, our model can explain the low insurance demand for catastrophic risks to some extent. We extend our model to include both insurance purchase and investment in a risky asset. Our results indicate that, with commitments, insurance appears to be a normal good within certain wealth regions. We also find that only when the initial wealth and housing are rather inconsistent individuals are likely to purchase insurance and lottery tickets simultaneously.

At the end of the deferment period a deferred annuity’s policyholder can choose between receiving annuity payouts or the capital accumulated. Considering stochastic mortality improvements, this is a valuable option for the policyholder. Whenever mortality improves less than expected at contract inception, the policyholder will choose the lump-sum and buy an annuity at current market prices. Otherwise, he will retain the more favorable deferred annuity. We use a life-cycle model and calculate the welfare gains of deferred annuities considering stochastic mortality improvements. Deferred annuities are found to substantially improve the welfare of an individual. The option feature is especially valuable in the presence of adverse selection problems. The results derived are relevant for individual retirement planning and pension system design.

The business of insurance is based on the trust of its policyholders, who expect that their losses will be compensated should the need arise at any time. Thus, sound financial conditions constitute the most important criterion for insurance firms, as well as for takaful operators. Although the policyholder may be the most important source of insurer finance, or a debt holder from an economic point of view through premium payments, the policyholder is not well informed in assessing the financial strength or solvency of the life insurer. Various measures of the solvency of the insurer are used in the industry, such as margin of solvency (MOS), risk based capital (RBC), and claim paying ability (CPA) rating. Unfortunately, none of these can provide information to policyholders on the financial position of the insurer. This is because the MOS and RBC for each insurer is the company's and regulator’s confidential information. However, for the CPA rating, it is limited to insurers who wish to be evaluated, and therefore the assessment is not comprehensive. Because of these shortcomings, this study provides a platform for policyholders to get an idea of the solvency of the insurers/takaful operators. Furthermore, this study identifies factors that affect the solvency of the insurers/takaful operators in Malaysia. Using random effects regression on panel data for 2003-2007, it is determined that investment income, total benefit paid to capital and surplus ratio, financial leverage, and liquidity are significantly related to solvency, in which the investment income has a positive relationship, while the other three have a negative relationship. From the results obtained, the policyholders/consumers can assess the insurers’ financial strength through the solvency determinants of the insurers/takaful operators, even though the actual level of solvency is not known. To some extent, this information can help policyholders/consumers make smarter choices in choosing the insurers/takaful operators

Employing an endogenous growth model, this paper investigates China’s partially funded public pension system. We examine the effects of the firm contribution rate and individual contribution rate on the per capita income growth rate, population growth rate, saving rate and education expense rate. The results are as follows: Raising the firm contribution rate decreases the per capita income growth rate and saving rate, whereas increases the population growth rate and education expense rate. Raising the individual contribution rate decreases the per capita income growth rate, saving rate and education expense rate, whereas increases the population growth rate. The effect of the firm contribution rate on the per capita income growth rate is much greater than that of the individual contribution rate. The effects of the firm contribution rate on the population growth rate, saving rate and education expense rate are smaller than that of the individual contribution rate. It has more advantages than disadvantages to reduce the firm contribution rate and raise the individual contribution rate.

In this paper we study the asset-liability management of an insurance company selling “participating contracts”. Participating contracts are typical insurance policies sold in Europe, in Japan or in North America. The payoff of a participating policy is linked to the portfolio and the surplus of the insurance company. We examine the impact of the choice of the assets' investment strategy on the company value, its solvency and how well the company may meet the commitments associated with its liabilities. Our goal is to exhibit an investment strategy matching as much as possible assets and liabilities at their market value and complying with existing regulation constraints. It is then shown that a dynamic CPPI strategy can significantly reduce the default probability of the company, and increase the policyholders contracts' market values. Consequently our study also shows that the valuation of participating policies and the determination of fair contracts should not be done neglecting the impact of the choice of the assets' allocation strategy.

Initial Public Offer is a mechanism to raise capital from the public. In the recent years there are number of Initial Public Offers [IPO] in India. The present study tries to find out the risk perception of the investors in respect of IPO investment and the degree of influence of the elements of marketing mix on the overall level of risk perception. The study is carried out on the registered investors of the leading share broking firms of Silchar town of Assam, India. It is found that the equity investors perceive equity investment through IPO as moderately risky. The degree of influence of promotion feature driven measure of risk perception is highest. Second, third and forth factors affecting the risk perception in respect of equity investment through IPO are price, product and place feature driven measure of risk perception.