The Development of Alternative Strategies for the Issuers of Unit-Linked Life Insurance Contracts with Investment Guarantees

One of the consequences of the financial markets’ development, and implicitly of insurance markets, has been the emergence of unit-linked life insurance products in the last two decades. Unit-linked contracts are life insurance policies with investment components. Due to the financial instability ca...

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Bibliographic Details
Published inStudia prawno-ekonomiczne no. 99; pp. 187 - 205
Main Authors Ciumas, Cristina, Chis, Diana-Maria, Corovei, Emilia-Ancuta
Format Journal Article
LanguageEnglish
Published Lodz Scientific Society 2016
Łódzkie Towarzystwo Naukowe
Subjects
Business Economy / Management
Economy
investment guarantees
Black–Scholes–Merton Model
theory of options
unitlinked products
equilibrium prices
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Summary:One of the consequences of the financial markets’ development, and implicitly of insurance markets, has been the emergence of unit-linked life insurance products in the last two decades. Unit-linked contracts are life insurance policies with investment components. Due to the financial instability caused by the Global Crisis and the amplification of market competitiveness, insurers from international markets have started to incorporate guarantees in unit-linked products. So a unit-linked life insurance policy with an asset value guarantee is an insurance policy whose benefit payable on death or at maturity consists of the greater of some guaranteed amount and the value of the units from the investment funds. One of the most challenging issues concerns the pricing of minimum death benefit and maturity benefit guarantees and the establishment of proper reserves for these guarantees. Although the Romanian legislation authorizes the Romanian insurers to offer unitlinked contracts without investment guarantees, this research provides a proposal of a theoretical and empirical basis for pricing and assessing unit-linked insurance contracts with incorporated investment guarantees. Therefore the model provides a theoretical framework for valuing these investment guarantees. Our findings reveal that the investment policy is optimal in that it provides the Romanian insurance company with a hedging strategy against the investment risk connected with these benefit guarantees.
ISSN:0081-6841