Market Value of Insurance Contracts with Profit Sharing

Abstract

The valuation of insurance contracts using a market value (i.e., fair value) approach has recently attracted considerable interest. The authors illustrate how to determine the market value of a with‐profits insurance policy, e.g., a variable annuity or other insurance policy with a profit‐sharing provision. The method is based on finding comparables, i.e., a set of financial instruments that closely replicate the cash flows of the policy.