Valuing embedded options and guarantees in life insurance products
25 May 2018
Insurance products are often characterized by embedded options and guarantees contractually promised to the policy holder. The value of these options and guarantees depends heavily on the prevailing economic conditions.
Examples are the interest rate in case of profit-sharing options, or the return on investments in case of Unit-Linked products with a return guarantee. The value of embedded options and guarantees is an integral part of the market value of insurance liabilities. A correct and consistent valuation is therefore essential. Not only from the perspective of good risk management, but also for internal and supervisory reporting. While determining the current value of embedded options and guarantees is usually not a problem, obtaining their future market value as needed in forward-looking applications like ORSA and ALM is much more complicated. The main problem is that one needs to assess the option value for each year in each scenario, resulting in extremely lengthy calculation times. Ortec Finance offers a solution to this problem through our Option Interpolation Model (OIM).
27 March 2023
Market update: A new banking crisis?
Recently financial markets have been rocked by concerns regarding the banking sector, reminiscent of the build-up to the financial crisis of 2008. An update.
This blog post explores three approaches to measuring the impact of liabilities on SAA: actuarial simulation, replicating portfolio, and product-based dynamic liability modelling. It also compares the advantages and disadvantages of each approach in terms of accuracy and runtime efficiency, highlighting the benefits of a dynamic liability modelling approach as a fast, flexible, and efficient solution for multi-scenario SAA analyses in a full ALM context.
Creating inflation-resilient portfolios through private assets
Inflation-protected portfolios typically provide a combination of diversification benefits and return improvement. For example, by diversifying to “real assets”, like commodities, direct real estate ...