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?

Login

0 votes

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%.

- All categories
- BUS 1003H - Introduction to Financial Risk (45)
- BUS 2016H - Financial Mathematics (53)
- BUS 3018F - Models (69)
- BUS 3024S - Contingencies (61)
- BUS 4028F - Financial Economics (22)
- BUS 4027W - Actuarial Risk Management (46)
- BUS 4029H - Research Project (5)
- Mphil (1)
- Calculus and Pure Mathematics (4)
- Statistics (16)

...