| Insurance League: Italy vs. UK (2003) | |||||||||||||||
Abstract | |||||||||||||||
| Insurance companies have been turning to innovative products in order to attract clients who are seeking, today, integration of their actuarial risks with financial risks. Products with guaranteed rates of return and bonus provisions play a particularly prominent role in this respect. These products come in many distinct flavors, and in this paper we compare two general models that prevail among the UK and Italian insurers. The differences in the policies offered by these two players in the insurance league derive from the characteristics of the bonus policies. Using an integratire asset and liability management model we examine the impact of these bonus policies from the points of view of the company's shareholders, the policyholders, and the management. In particular, we find that the greater flexibility afforded UK insurers is reflected in increased benefit for shareholders at the expense of policyholders. Recent events in the UK have shown how dramatic the impact of this bias can be. | |||||||||||||||
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