The efficacy of life insurance company general account equity asset allocations: a safety-first perspective using vine copulas

Ryan Timmer, John Paul Broussard, G. Geoffrey Booth

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

Abstract

We study the asset allocation decision of a life insurance company’s general account with respect to the possibility of large negative economic shocks and examine how this account is affected by policyholder investment decisions in the company’s separate account. This is accomplished using a performance metric that incorporates downside risk measured using univariate and multivariate extreme value distributions. Because of its well-known price volatility, diversification attributes, and significant weight in the combined general and separate accounts, our primary focus is the company’s equity investments. Although industry asset allocations have varied over the past two decades, we find that the actual allocations to equity in the general account are close to the allocation percentages suggested by our extreme value metrics and both are far below the maximum values indicated by the relevant regulatory bodies.
Original languageEnglish
Peer-reviewed scientific journalAnnals of Actuarial Science
Volume12
Issue number2
Pages (from-to)372–390
Number of pages19
ISSN1748-4995
DOIs
Publication statusPublished - 21.01.2018
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Life Insurance
  • Investment Performance
  • Asset Allocation
  • Downside Risk
  • Vine copulas
  • Background Risk
  • Extreme value theory

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