In this paper we present an approach to market based valuation of life insurance policies, in the spirit of the NUMAT proposed by Hans Bühlmann (2002) in an editorial in the ASTIN Bulletin. We have experienced the valuation method for more than one decade, both as a pricing procedure applied to policy portfolios of leading insurance companies, and by including the valuation principles into several actuarial teaching activities.
Our interest is mainly focused here on participating policies that in Italy are characterized by contractually binding profit sharing rules. The problem of the fair valuation of the liabilities generated to the insurer by these contracts can be conveniently addressed using the methods of contingent claims pricing. These allow to price correctly the options embedded into the policies and to implement consistent plans of asset-liability management. The approach also provides a market based measurement of the value of business in force for outstanding policy portfolios and consistent assessments of the financial risk based capitals.