Asset and Liability Modelling for Participating Policies with Guarantee

We study the problem of asset and liability management of participating insurance policies with guarantees. We develop a scenario optimization model for integrative asset and liability management, analyse the tradeoffs in structuring such policies, and study alternative choices in funding them. The nonlinearly constrained optimization model can be linearised through closed form solutions of the dynamic equations. Thus large-scale problems are solved with standard methods. We report on an empirical analysis of policies offered by Italian insurers. The optimized model results are in general agreement with current industry practices. However, some inefficiencies are identified and potential improvements are highlighted.