Search results

In this paper we study the asset-liability management of an insurance company selling "participating contracts". Participating contracts are typical insurance policies sold in Europe, in Japan or in North America. The payoff of a participating policy is linked to the portfolio and the surplus of the insurance company. We examine the impact of the choice of the assets' investment strategy on the company value, its solvency and how well the company may meet the commitments associated with its liabilities. Our goal is to exhibit an investment strategy matching as much as possible assets and liabilities at their market value and complying with existing regulation constraints. It is then shown that a dynamic CPPI strategy can significantly reduce the default probability of the company, and increase the policyholders contracts' market values. Consequently our study also shows that the valuation of participating policies and the determination of fair contracts should not be done neglecting the impact of the choice of the assets' allocation strategy.