Seminar by Professor Daniël Linders, Amsterdam School of Economics, University of Amsterdam, Netherlands

In this paper, we propose a four-step decomposition of hybrid liabilities into a hedgeable part, non-hedgeable financial, a diversifiable actuarial part and a systematic part. We generalize existing approaches of decomposing hybrid liabilities by incorporating correlations between financial and actuarial markets and heterogeneity in policyholderspecific risks. Our model provides a market- and model-consistent valuation framework which we illustrate using a portfolio of with-profit pure endowment contracts.

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