Guarantee structures

Ermanno Pitacco

6.1 INTRODUCTION: GUARANTEES AND OPTIONS

The features of all life contingency products imply the transfer of risks from the insured to the insurer. This transfer is implemented through guarantees provided by each life contingency product.

Generally speaking, some guarantees are embedded in the life contingency product, in the sense that no specific customer choice or action is needed in order to enable the guarantees themselves. Conversely, implementing further guarantees may be the result of the customer’s specific choices via the exercise (at policy issue or, in some cases, later) of options provided by the contract. The exercise of any option usually implies the presence of one or more additional guarantees.

The broader the set of options provided, the greater the possibility of tailoring the insurance product to a specific customer’s needs, preferences and expectations (see Section 4.4).

Returning to the life annuity context, we note that the guarantees embedded in conventional life annuities are the interest guarantee and the longevity guarantee.

According to the interest guarantee, the policy reserve must be credited annually with an amount calculated with the