A Study on the Risk and Return Sharing Mechanism for Interest-sensitive Life Insurance Products under IFRS 17 Accounting


  • Richard Lu Department of Risk Management and Insurance, Feng Chia University Corresponding Author https://orcid.org/0000-0002-9705-6793
  • Jai-Jen Wang Department of Finance, Feng Chia University Author
  • Shin-Hung Pan Department of M-Commerce and Multimedia Applications, Asia University Author




Interest-sensitive Life Insurance, Share Mechanism, Contract Service Margin, IFRS17


Purpose. This paper analyzes how the share mechanism of interest-sensitive life insurance products affect the investment risk and returns for insurer and policyholders.

Design/methodology/approach. For this purpose, we use the idea of contract service margin and loss component in IFRS17 and Monte Carlo simulations, this study provides some numerical results of return and risk sharing under different share mechanism by setting various minimum crediting rates and share portions.

Findings. Given a minimum crediting rate and share portion, the numerical results can show that what average IRR policyholders could have and what average profit the insurer can obtain. The results also indicates that the part of market risk belongs to the insurer. Finally, the market risk-adjusted return can be calculated for the insurer.

Originality/value. Our approach, results and conclusions are original and new in the literature.


Alghalith, M. 2021. Pricing Options Under Stochastic Interest Rate And The Frasca–Farina Process: A Simple, Explicit Formula. Annals of Financial Economics 16(01), 1-4.

Aye, G. C. (2021). Effects of fiscal and monetary policy uncertainty on economic activity in South Africa. Advances in Decision Sciences, 25(1), 167-187.

Aye, G. C., & Odhiambo, N. M. (2021). Threshold effect of inflation on agricultural growth: evidence from developing countries. Advances in Decision Sciences, 25(2), 1-22.

Chang, F. H., & Zhang, L. (2022). Revisiting Inflation-Growth Nexus: An Endogenous Growth Model with Financial Frictions. Annals of Financial Economics (AFE), 17(01), 1-13

Gupta, R., Majumdar, A., Nel, J., & Subramaniam, S. (2021). Geopolitical risks and the high-frequency movements of the US term structure of interest rates. Annals of Financial Economics, 16(03), 2150012.

Lee, H, Choi, S-H and Ha, H. (2020), A sharing mechanism of investment outcome for interest-sensitive life insurance products, North American Journal of Economics and Finance, 54, 101237.

Mahmood, F., Shahzad, U., Nazakat, A., Ahmed, Z., Rjoub, H., & Wong, W. K.. (2022). The nexus between cash conversion cycle, working capital finance and firm performance: Evidence from novel machine learning approaches. Annals of Financial Economics, 17(02), 1-44.

Mou, W., Wong, W. K., & McAleer, M. (2018). Financial credit risk evaluation based on core enterprise supply chains. Sustainability, 10(10), 3699.

Palmborg, L., Lindholm, M. and Lindskog, F. (2021), Financial position and performance in IFRS 17. Scandinavian Actuarial Journal, 2021, 171–197.

Pham, Q. H., Ho, D., Khandaker, S., & Tran, A. T. (2022). Investigating the effects of Accounting Law on the Credit Rating Models using Artificial Neural Networks: a study in Vietnam. Advances in Decision Sciences, 26(4), 1-32.

Pierdzioch, C., Rohloff, S., von Campe, R. (2022). On the predictive value of the (shadow) real interest rate for the realized volatility of gold-price returns. Annals of Financial Economics, 2241001.

Sahoo, S., & Kumar, S. (2021). Existence of cointegration between the public and private bank index: Evidence from Indian Capital Market. Advances in Decision Sciences, 25(4), 152-172.

Trang, L.N.T., Nhan, D.T.T., Hao, N.T.N., Wong, W. K. (2021). Does Bank Liquidity Risk Lead to Bank's Operational Efficiency? A Study in Vietnam. Advances in Decision Sciences, 25(4), 1-43.

Tsendsuren, S., Li, C. S., Peng, S. C., & Wong, W. K. (2018). The effects of health status on life insurance holdings in 16 European countries. Sustainability, 10(10), 3454.

Wong, W.K., Broll, U., Qiao, Z., Ma, C. 2023. New stochastic dominance theory for investors with risk-averse and risk-seeking utilities with applications. Risk Management, forthcoming.

Wong, W. K., Khan, H., & Du, J. (2006). Do money and interest rates matter for stock prices? An econometric study of Singapore and USA. Singapore Economic Review, 51(01), 31-51.

Yousuf, W., Stansfield, J., Malde, K., Mirin, N., Walton, R., Thorpe, B., Thorpe, J., Iftode, C., Tan, L., Dyble, R., Pelsser, A., Ghosh, A., Qin, W., Berry, T. and Er, C. (2021). The IFRS 17 contractual service margin: A life insurance perspective. British Actuarial Journal, 26, 1-105.



How to Cite

Lu, R., Wang , J.-J., & Pan, S.-H. (2023). A Study on the Risk and Return Sharing Mechanism for Interest-sensitive Life Insurance Products under IFRS 17 Accounting. Advances in Decision Sciences, 26(5), 40-52. https://doi.org/10.47654/v26y2022i5p40-52