On pricing and reserving with-profits life insurance contracts

David Prieul, Vladislav Putyatin and Tarek Nassar

Applied Mathematical Finance, 2001, vol. 8, issue 3, 145-166

Abstract: As a first approximation, asset and liability management issues faced by life insurance companies originate from the sale of with-profits contracts. These contracts are bond-type products with several rate guarantees and other interestsensitive embedded options. Benefits paid out to policyholders mostly depend on the investment performance of a given asset portfolio in which premiums are invested. Thus, guarantees and options granted to policyholders may become effective when the investment performance of the asset portfolio is poor. Issuing a with-profits contract is therefore not equivalent to issuing plain-vanilla debt. The purpose of this paper is to value with-profits liabilities in a consistent option-pricing framework and to develop efficient asset or liability strategies to manage profitability and variability of shareholder value.

Keywords: Asset And Liability Management; Life Insurance; With-PROFITS Policy; Shareholder Value; Option Pricing; Parabolic Partial Differential Equations; Matched Asymptotic Expansions (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/13504860110111279

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