We analyse contracts which pay out a guaranteed minimum rate of return and a fraction of a positive excess rate, which is specified on the basis of a benchmark portfolio. These contracts are closely related to unit--linked life--insurance/savings plan products and can be considered as...

Variable annuities, as a class of retirement income products, allow equity market exposure for a policyholder's retirement fund with electable additional guarantees to limit the downside risk of the market. Management fees and guarantee insurance fees are charged respectively for the market...

Participating life insurance contracts allow the policyholder to participate in the annual return of a reference portfolio. Additionally, they are often equipped with an annual (cliquet-style) return guarantee. The current low interest rate environment has again refreshed the discussion on risk...

This paper aims to value a Guaranteed Investment Contract (GIC), offered by insurance companies, with a minimum rate of return and an option to surrender the contract (surrender option) at any time before the maturity date. The valuation framework uses a set of different models to value each one...

Guarantees embedded variable annuity contracts exhibit option-like payoff features and the pricing of such instruments naturally leads to risk neutral valuation techniques. This paper considers the pricing of two types of guarantees; namely, the Guaranteed Minimum Maturity Benefit and the...

Life insurers often claim that the life settlement industry reduces theirsurrender profits and leads to an adverse shift in their portfolio of insuredrisks, i.e., bad risks remain in the portfolio instead of surrendering.In this paper, we aim to quantify the effect of altered...

Universal life policies are the most popular insurance contract design in theUnited States. They have either a level death benefit paying a fixed faceamount, or an increasing death benefit, which additionally pays the availablecash value, and both types include the option to switch from one to...

In this paper, we investigate the impact of different asset management and surplus distributionstrategies in life insurance on risk-neutral pricing and shortfall risk. In general,these feedback mechanisms affect the contract’s payoff and hence directly influence pricingand risk measurement. To...

Participating life insurance contracts typically contain various types of implicit options. These implicit options can be very valuable and can thus represent a sig-nificant risk to the insurance companies issuing these contracts in case of in-sufficient risk management. Options can get...

Most life insurance contracts embed the right to stop premium payments during the termof the contract (paid-up option). Thereby, the contract is not terminated but continueswith reduced benefits and often provides the right to resume premium payments later,thus increasing the previously reduced...