One way to minimize guarantees is for providers to sell with profit or unit linked contracts instead of without profit contracts. How does this reduce guarantees?

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EM: Here you can compare non-profit, unit-linked and with-profit contracts with regards to (a) what % of the assets back known nominal liabilities (i.e. guarantees) and (b) how is investment return allocated. In all three cases, consider the assets to be invested in a balanced fund.

The non-profit product has 100% of assets backing the known nominal pay-out. Any profit/losses are carried by the insurer, every accounting period.

For the unit-linked product, there is no known nominal liability. The liability is defined in terms of the assets. So there is no nominal guarantee. Promising to pay out assets in a fund does not constitute a guarantee in this context.

For a with-profit contract, bonuses granted may not vest immediately, and so the % of assets that back nominal guarantees is less than 100%.

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