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The valuation of the embedded options can be quite challenging

Looking to enhance the quality of your valuation?

Although many insurers have discontinued or scaled back their product offering with respect to insurance products containing some form of (return) guarantee or profit sharing, the valuation of these embedded options still remains an important issue. Especially since these type of products have been very popular in the past and in many markets are still favored by consumers.

 

Driven by the need to thoroughly understand the risks inherent in the balance sheet, a key concern is having insight into the sensitivities these embedded options have toward changes in the economic environment. Furthermore, regulatory requirements are becoming more and more strict with respect to reporting deadlines and prerequisites for valuation. This necessitates a high-quality and fast valuation framework underlying the valuation and reporting process.

 

The valuation of the embedded options can be quite challenging due to for instance the complexity of the pay-out structure of the insurance products or the sheer computation time needed to obtain an accurate valuation. In the document below we highlight several of these challenges that are encountered when implementing and executing the valuation process. Given these challenges we also take a look at how they can be mitigated or minimized.

Read the full document here.