Research On Life Insurance Product Pricing Based On Heterogeneous Policy Group

Effective pricing methods are the essential foundation for risk management of insur-ance companies. Unfortunately, the pricing methods for life insurance products ignore quantification of risk which may bring adverse selection and potential loss to insurance companies. This paper takes heterogeneous portfolio into account in pricing.Whole life insurance products with annual premiums are considered. This paper introduces stochastic interest model and derives some important probability characters and the risk assessment indicator eventually. The difference of age at issue contributes to the heterogeneity. Quadratic programming with single and multiple constraints is introduced to optimize pricing. The conditions of existence and uniqueness for quadratic programming solutions are also discussed in detail. This paper provides explicit solution for quadratic programming with single constraint, and makes a series of numerical analysis in multiple constraints’ situations, focusing on sensitivity testing of optimal premiums and the change rate of the overall risk. This paper also compares the results between male and female policyholders.The risk assessment indicator performances well in identifying risk difference among different age at issue and coverage in the heterogeneous portfolio, drawing the conclusion that the risk positively correlates to age at issue and coverage. The quadratic program-ming model achieves risk management based on existing asset share pricing technique. The loaded premiums are allocated according to portfolio’s risk, enhancing with a rel-atively high value and vice versa, and pricing fairness is appreciated to be guaranteed.