Investment Guarantees: The New Science of Modeling and Risk Management for Equity-Linked Life Insurance

From the Inside Flap:

The object of life insurance is to provide financial security to policyholders and their families. But insurance markets around the world are changing, and policyholders want to enjoy the benefits of equity investments in conjunction with mortality protection. This idea has led to the development of equity-linked life insurance, and has probably left you searching for better ways to model these innovative investment guarantees as well as measure the risk associated with them.

Whether you’re involved with the product design, marketing, pricing and valuation, or risk management of equity-linked insurance, this book has something for you. Investment Guarantees: Modeling and Risk Management for Equity-Linked Life Insurance is a comprehensive guide that combines the econometric analysis of these investment models with their applications in pricing and risk management.

Designed with all equity-linked life insurance practitioners in mind, you’ll find both approaches to risk management of equity-linked insurance–the "actuarial" approach and the dynamic hedging approach–presented, discussed, and extensively illustrated with examples. Investment Guarantees opens with a discussion of various models, moves through modeling techniques, and addresses risk management in a straightforward, accessible manner. This unique resource will:

• Introduce the various types of investment guarantees commonly used in equity-linked insurance, including guaranteed death and living benefits
• Explore contracts which offer investment guarantees as part of the benefit package–variable annuities, segregated fund contracts, unit-linked contracts, equity-indexed annuities, and guaranteed annuity options
• Discuss stochastic models commonly used for equity returns, including ARCH and GARCH models, and regime switching models
• Illustrate parameter estimation using both Maximum Likelihood Estimation (MLE) and Markov Chain Monte Carlo Method (MCMC)–a Bayesian approach
• Explain how to model investment guarantees using the "actuarial" approach and the dynamic hedging approach to risk management
• Describe stochastic emerging cost modeling
• Examine the sources of forecast uncertainty

Investment Guarantees carefully pulls together all of the most recent models and methods that are useful in managing the risk associated with equity-linked insurance. Filled with professional insights and proven techniques, this book is a valuable one-stop reference that will allow you to better understand the theory and practice behind modeling and risk management for equity-linked life insurance.

From the Back Cover:

Praise for InvestmentGuarantees

"In addition to being a valuable and innovative addition to the literature on risk management of equity-linked insurance, this book provides a uniquely clear demonstration of using different measures in a very practical context. A great way of showing actuaries how to ‘mind their Ps and Qs’!"
—Boris Brizeli
Principal and Chief Operations Officer
GE Insource Limited

"This is an extremely well written and comprehensive book which will be useful for both practitioners and graduate students. It provides a unique synthesis of techniques and tools in econometrics, financial engineering, and simulation applied to questions of fundamental importance in insurance."
—Dr. Andrew Cairns
Reader in Financial and Actuarial Mathematics
Heriot-Watt University

"Investment Guarantees will become the reference book of choice for both actuaries and non-actuaries alike working in the field of guarantees associated with equity-linked products. The book provides an excellent balance between theory and practice in the course of contrasting actuarial modeling and option pricing theory as applied to guarantees on equity-linked products."
—Larry M. Gorski
Life Actuary
Illinois Department of Insurance

"Professor Hardy strikes the right balance between theory development and practical demonstration, offering insights to both novices and experienced practitioners. Her comprehensive treatment of risk modeling of investment guarantees will benefit actuaries and financial engineers alike, allowing each to understand better the nature and management of equity exposure. Exceptionally readable, Investment Guarantees is an invaluable resource for insurance and financial professionals working with equity-linked insurance and annuity products."
—Geoffrey H. Hancock
Principal
Mercer Risk, Finance & Insurance Consulting

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