The Value of Integrative Risk Management for Insurance Products with Guarantees

Consiglio, Andrea; Cocco, Flavio; Zenios, Stavros A.

doi:10.1108/eb043464

Cited by 26 publications

(11 citation statements)

References 10 publications

(11 reference statements)

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“…Jensen and Sørensen (2002) ask whether products with minimum guarantees really serve investorsÕ interests, with interesting conclusions. The study of the asset and liability management of ''plain-vanilla'' minimum guarantee products such as those offered in the Italian industry has been undertaken by Consiglio et al (2001). Among the results in their paper, they demonstrated that the firm could substantially increase shareholder value by considering the integrated asset and liability management problem of structuring the firmÕs portfolio optimally.…”

Section: Existing Literaturementioning

confidence: 99%

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Asset and liability management for insurance products with minimum guarantees: The UK case

Consiglio

Saunders

Zenios³

2006

Journal of Banking & Finance

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Modern insurance products are becoming increasingly complex, offering various guarantees, surrender options and bonus provisions. A case in point are the with-profits insurance policies offered by UK insurers. While these policies have been offered in some form for centuries, in recent years their structure and management have become substantially more involved. The products are particularly complicated due to the wide discretion they afford insurers in determining the bonuses policyholders receive. In this paper, we study the problem of an insurance firm attempting to structure the portfolio underlying its with-profits fund. The resulting optimization problem, a non-linear program with stochastic variables, is presented in detail. Numerical results show how the model can be used to analyze the alternatives available to the insurer, such as different bonus policies and reserving methods.

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Section: Existing Literaturementioning

confidence: 99%

“…The first specification is the one used in Consiglio et al (2001), and reflects the strict requirements applied in the Italian industry. With this method, funds are required from shareholders whenever the asset portfolio underperforms the guarantee (even when there already exists a surplus of assets over liabilities).…”

Section: Reserving For Underperformancementioning

confidence: 99%

Asset and liability management for insurance products with minimum guarantees: The UK case

Consiglio

Saunders

Zenios³

2006

Journal of Banking & Finance

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“…The Russell-Yasuda Kasai model was designed to analyze such situations to evaluate their risk and determine good investment strategies. Consiglio, Cocco, andZenios (2001, forthcoming 2004) discussed a model for managing such insurance policies with guarantees that Prometeia has used for Italian insurers. In these policies, there are guarantees on the minimum rate of return, bonus provisions, and surrender options.…”

Section: Insurance Products With Guaranteesmentioning

confidence: 99%

The Stochastic Programming Approach to Asset, Liability, and Wealth Management

ZiembaWilliam¹

2003

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and a consultant to a number of leading financial institutions, including the Frank Russell Company and Morgan Stanley. Professor Ziemba has also worked as a futures and equity trader and a hedge fund and investment manager since 1983. His research has focused on asset/liability management, portfolio theory and practice, security market imperfections, Japanese and Asian financial markets, hedge funds, sports and lottery investments, and applied stochastic programming.

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“…Nietert (2003) investigates option based portfolio insurance and model uncertainty. As shown by Consiglio et al (2001), however, firms can substantially increase their profits and offer higher guarantees by investing a higher proportion of their assets in an optimally structured equity portfolio. Consiglio et al (2006) apply stochastic programming to find the optimal structure of the portfolio underlying an insurance company's fund.…”

Section: Introductionmentioning

confidence: 99%

A robust asset–liability management framework for investment products with guarantees

2016

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This paper suggests a robust asset-liability management framework for investment products with guarantees, such as guaranteed investment contracts and equity-linked notes. Stochastic programming and robust optimization approaches are introduced to deal with data uncertainty in asset returns and interest rates. The statistical properties of the probability distributions of uncertain parameters are incorporated in the model through appropriately selected symmetric and asymmetric uncertainty sets. Practical data-driven approaches for implementation of the robust models are also discussed. Numerical results using generated and real market data are presented to illustrate the performance of the robust asset-liability management strategies. The robust investment strategies show better performance in unfavorable market regimes than traditional stochastic programming approaches. The effectiveness of robust investment strategies can be improved by calibrating carefully the shape and the size of the uncertainty sets for asset returns.

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The Value of Integrative Risk Management for Insurance Products with Guarantees

Cited by 26 publications

References 10 publications

Asset and liability management for insurance products with minimum guarantees: The UK case

Asset and liability management for insurance products with minimum guarantees: The UK case

The Stochastic Programming Approach to Asset, Liability, and Wealth Management

A robust asset–liability management framework for investment products with guarantees

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