Proceedings of the 51st Annual Meeting of the ISSS - 2007, Tokyo, Japan, Papers: 51st Annual Meeting

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Perla Rocio Calidonio Aguilar


In this paper we try to determine the “Optimal Premium” that should be charged to the policyholder in order to maximize the company’s profits on a specific type of policy in order to meet all the contractual obligations of the company due to the minimum guarantee rate and participation rate. In the past, many papers have analyzed the pricing of insurance policies in order to make a “fair” valuation of it; however, we consider that the fair value doesn’t represent the real world; therefore will take a more realistic approach from the management point of view.
Typically modern insurance products embed several types of financial options, features that increase their complexity. As a result their accurate valuation is an issue of great concern for life insurance companies, not just because of solvency problems that might arise but also because of competitive pressures. This paper contemplates a life insurance policy, in particular of the endowment type in which a minimum return is guaranteed to the policyholder and according to the performance of a particular investment portfolio during the year, an additional amount may be credited.

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