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Asset Risk Management of Participating Contracts


  • Bernard Carole

    (University of Waterloo)

  • Le Courtois Olivier

    (EM Lyon)


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.

Suggested Citation

  • Bernard Carole & Le Courtois Olivier, 2012. "Asset Risk Management of Participating Contracts," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 6(2), pages 1-23, June.
  • Handle: RePEc:bpj:apjrin:v:6:y:2012:i:2:n:5

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    References listed on IDEAS

    1. Ballotta, Laura, 2005. "A Lévy process-based framework for the fair valuation of participating life insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 37(2), pages 173-196, October.
    2. Brennan, Michael J. & Schwartz, Eduardo S., 1976. "The pricing of equity-linked life insurance policies with an asset value guarantee," Journal of Financial Economics, Elsevier, vol. 3(3), pages 195-213, June.
    3. Helmut Gründl & Hato Schmeiser, 2007. "Capital Allocation for Insurance Companies-What Good IS IT?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 301-317.
    4. Ballotta, Laura & Esposito, Giorgia & Haberman, Steven, 2006. "The IASB Insurance Project for life insurance contracts: Impact on reserving methods and solvency requirements," Insurance: Mathematics and Economics, Elsevier, vol. 39(3), pages 356-375, December.
    5. Laura Ballotta & Steven Haberman & Nan Wang, 2006. "Guarantees in With-Profit and Unitized With-Profit Life Insurance Contracts: Fair Valuation Problem in Presence of the Default Option," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 97-121.
    6. Nadine Gatzert & Alexander Kling, 2007. "Analysis of Participating Life Insurance Contracts: A Unification Approach," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(3), pages 547-570.
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    Cited by:

    1. Lin, Hongcan & Saunders, David & Weng, Chengguo, 2017. "Optimal investment strategies for participating contracts," Insurance: Mathematics and Economics, Elsevier, vol. 73(C), pages 137-155.

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