The Term Structure of Reserve Durations and the Duration of Aggregate Reserves

Abstract

Estimating the duration gap of a life insurer demands the knowledge on the durations of liabilities and assets. The literature analyzed the durations of assets extensively but rendered limited analyses on the durations of insurance liabilities. This article calculated the reserve durations for individual policies and estimated the duration of the aggregate reserves. The results showed that the duration of the policy reserve might be negative and/or have a large figure. They further revealed an interesting pattern of the reserve duration with respect to the policy`s time to maturity. A term structure with abnormal durations, however, does not result in an abnormal duration of the aggregate reserves.