Pricing Research On Participating Annuity Insurance Based On Hull-White Model

In 2015,the China Insurance Regulatory Commission carried out reform on participating life insurance premium rate to lift the restrictions over the assumed interest rate for participating life insurance.In 2017,Ping An Life Insurance’s participating life insurance ranked the first(gross premiums totaling CNY39.734 billion)by gross premiums among its top-5 insurance products.In 2018 and 2019,life insurance companies marketed their participating annuity insurance as the major products in their new-year marketing activities,which might indicate that participating annuity insurance is likely to become the mainstream insurance product in the future.However,as China’s financial market has been impacted by low interest rates,insurance companies’,investment returns have seen a certain extent of decline,which might lead to zero dividend,or even force insurance companies to pay the dividend which is higher than their profit.If investment risks can be appropriately transferred to the insured through premiums,insurance companies will be able to reduce their losses,so as to stabilize their operations.This paper adopts the principle of actuarial balance and takes dividends into consideration in the pricing of participating annuity insurance.Firstly,under the assumption that the investment return is constant,dividends are sorted into three levels,namely,high-,medium-,and low-level,and the premium for each level is calculated based on the pricing model for participating annuity insurance and assumptions including an experience-based life chart of the insurance industry.The statutory reserves have been modified according to actual regulatory requirements to calculate the dividends and premiums,in order to increase the pricing accuracy.In addition,the Hull-White model is applied to improve the pricing model for participating annuity insurance,and the relevant parameters for the Hull-White model are estimated using the least square method based on treasury yield and SHIBOR to predict the future treasure yield.We analyzed the calculated dividends and premiums and found that when the investment return of an insurance company is lower than the demonstrated interest rate or even lower than the preset interest rate,taking dividends into consideration for pricing can increase the premiums,but then the insurance company will adjust its dividend and make the dividend return much higher than the additional premiums.