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Market Based Tools for Managing the Life Insurance Company

Published online by Cambridge University Press:  17 April 2015

Massimo De Felice  and
Franco Moriconi
Massimo De Felice
Affiliation:
Dipartimento di Scienze Attuariali e Finanziarie, Università di Roma “La Sapienza”, via Nomentana, 41 00161 Roma, Italy, E-mail: massimo.defelice@uniroma1.it
Franco Moriconi
Affiliation:
Dipartimento di Economia – Facoltà di Economia, Università di Perugia, via A. Pascoli, 1 06100 Perugia, Italy, E-mail: moriconi@unipg.it, fax: +39 (0)75 585 5221
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Abstract

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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.

Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 35 , Issue 1 , May 2005 , pp. 79 - 111
Copyright
Copyright © ASTIN Bulletin 2005

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