The Bonus-crediting Mechanism of Danish Life Insurance Companies An Empirical Analysis

This paper develops and estimates a model for the bonus-crediting mechanism of Danish life insurance and pension companies. The market for pension and life insurance savings contracts is generally highly opaque, but our proposed model is able to explain a significant part of the variation in actual bonus distribution by Danish market participants. The main determinant of bonus policy a is measure of the degree of solvency which we construct from a unique data set that contains information compiled from several public as well as non-public sources. The data set spans the 10-year period from 1991 to 2000 and the model is estimated by way of (non-linear) least squares as well as maximum likelihood.