Deterministic lifestyle investment strategy in mixed life insurance contracts

Vanessa Hanna () and Pierre Devolder ()
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Vanessa Hanna: Université catholique de Louvain, LIDAM/ISBA, Belgium
Pierre Devolder: Université catholique de Louvain, LIDAM/ISBA, Belgium

No 2024025, LIDAM Reprints ISBA from Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA)

Abstract: Hybrid life insurance contracts have recently gained prominence in various markets. In this context, our interest lies in products that combine participating and unit-linked contracts, delving into the dynamic interplay between financial guarantees and investment strategy. This paper aims to ascertain if the equilibrium between participating and unit-linked life insurance policies aligns with the lifestyle investment strategy, thereby maximizing the expected utility of the policyholder at the contract' s maturity while adhering to the fair pricing relation of the contract. In particular, it looks at the pricing of the fair guaranteed rates and the optimal investment strategy using a specified deterministic investment style. Our analysis reveals that a stable investment strategy often dominates across different levels of risk aversion, within the assumption of the classical utility function. However, to capture policyholders' changing risk preferences as they age, we extend the study to incorporate periodic premium payments and time-varying risk aversion. The results emphasize the effectiveness of this approach in tailoring the lifestyle investment strategy.

Keywords: Hybrid products; Investment guarantees; Lifestyle investment strategy; Expected utility; Time-varying risk aversion (search for similar items in EconPapers)
Pages: 36
Date: 2024-10-01
Note: In: Decisions in Economics and Finance, 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aiz:louvar:2024025

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