Modern insurance products are becoming increasingly complex, offering various guarantees,surrender options and bonus provisions. A case in point are the with-profits insurancepolicies offered by UK insurers. While these policies have been offered in some form for centuries,in recent years their structure and management have become substantially moreinvolved. The products are particularly complicated due to the wide discretion they affordinsurers in determining the bonuses policyholders receive. In this paper, we study the problemof an insurance firm attempting to structure the portfolio underlying its with-profits fund. Theresulting optimization problem, a non-linear program with stochastic variables, is presented indetail. Numerical results show how the model can be used to analyse the alternatives availableto the insurer, such as different bonus policies and reserving methods.
|Rivista||JOURNAL OF BANKING & FINANCE|
|Stato di pubblicazione||Published - 2006|
All Science Journal Classification (ASJC) codes