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1、CHAPTER1InvestmentGuaranteesINTRODUCTIONheobjectiveoflifeinsuranceistoprovidefinancialsecuritytopolicy-Tholdersandtheirfamilies.Traditionally,thissecurityhasbeenprovidedbymeansofalumpsumpayablecontingentonthedeathorsurvivaloftheinsuredlife.Thesuminsuredwouldbe

2、fixedandguaranteed.Thepolicy-holderwouldpayoneormorepremiumsduringthetermofthecontractfortherighttothesuminsured.Traditionalactuarialtechniqueshavefocusedontheassessmentandmanagementoflife-contingentrisks:mortalityandmorbidity.Theinvestmentsideofinsurancegener

3、allyhasnotbeenregardedasasourceofmajorrisk.Thiswas(andstillis)areasonableassumption,whereguaranteedbenefitscanbebroadlymatchedorimmunizedwithfixed-interestinstruments.Butinsurancemarketsaroundtheworldarechanging.Thepublichasbecomemoreawareofinvestmentopportunit

4、iesoutsidetheinsurancesec-tor,particularlyinmutualfundtypeinvestmentmedia.Policyholderswanttoenjoythebenefitsofequityinvestmentinconjunctionwithmortalityprotection,andinsurersaroundtheworldhavedevelopedequity-linkedcontractstomeetthischallenge.Althoughsomecont

5、racttypes(suchasuni-versallifeinNorthAmerica)passmostoftheassetrisktothepolicyholderandinvolvelittleornoinvestmentriskfortheinsurer,itwasnaturalforinsurerstoincorporatepaymentguaranteesinthesenewcontracts—thisisconsistentwiththetraditionalinsurancephilosophy.

6、IntheUnitedKingdom,unit-linkedinsuranceroseinpopularityinthelate1960sthroughtothelate1970s,typicallycombiningaguaranteedminimumpaymentondeathormaturitywithamutualfundtypeinvestment.ThesecontractsalsospreadtoareassuchasAustraliaandSouthAfrica,whereU.K.insuranc

7、ecompanieswereinfluential.IntheUnitedStates,variableannuitiesandequity-indexedannuitiesofferdifferentformsofequity-linkingguarantees.InCanada,segregatedfundcontractsbecamepopularinthelate1990s,oftenincorporatingcomplexguaranteedvalueson12INVESTMENTGUARANTEESde

8、athormaturity.Germanyrecentlyintroducedequity-linkedendowmentinsurance.Similarcontractsarealsopopularinmanyotherjurisdictions.Inthisbookthetermequity-linkedinsuranceisusedtorefertoanycont