Insurance-interest-rate-hedging教程.pdfVIP

Interest Rate Hedging on Traditional Life and Health A Research Project with the Society of Actuaries Craig W. Reynolds David W. Wang Milliman, Inc. September 13, 2007 Abstract Traditional life and health products have long been regarded as non-interest sensitive. Pricing has often been done with only a single interest scenario projection. Asset liability matching is sometimes confusing because of the very long or sometimes even negative duration measures of net liability cash flows. In this paper, we summarize the practices of some major industry players with respect to how they manage the interest-rate risk of their traditional business. We have found that there is a general lack of industry attention to managing the interest-rate risk on traditional products. We show by stochastic pricing on these products that interest-rate risk may warrant more attention than it receives. We measure interest sensitivity in terms of DV01 and Dollar Partial Duration, both of which are calculated by applying a one-basis-point shock to the corresponding Par Yields. We then simulate hedging strategies using cash and bonds or derivatives to hedge the interest-rate changes. We analyze a nonpar whole-life product as well as a long-term care product, observing very similar results for both products. We conclude that there is substantial interest-rate risk in these products, and hedging may provide significantly more protection against such risk than does a simple duration-match strategy. September 13, 2007 1. Introduction This research paper is prepared in response to the request for proposals from the Society of Actuaries’ Committee on Finance Research to explore the design and use of interest- rate hedging on traditional health and life products. In particular