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Effect of Guaranteed Minimum Benefits on Unit-Linked Insurance Valuation

Abstract

Unit-linked insurance products combine life insurance protection with investment-linked benefits, making their values sensitive to changes in underlying investment funds. Guaranteed minimum benefits provide policyholders with a predetermined minimum level of protection regardless of adverse investment performance. These guarantees can create additional financial obligations for insurers and therefore influence the actuarial valuation of unit-linked insurance contracts. Accurate valuation of such guarantees is important for determining appropriate liabilities, reserves, and capital requirements. This study examines the effect of guaranteed minimum benefits on unit-linked insurance valuation. The study will assess how the inclusion and level of guaranteed minimum benefits influence the actuarial value of unit-linked insurance contracts. It will also examine how changes in investment returns, market conditions, mortality assumptions, and guarantee levels affect the value of the associated insurance obligations. The study will focus on guaranteed minimum death benefits, guaranteed maturity benefits, guaranteed minimum accumulation benefits, fund values, investment returns, policy charges, and contract duration. Actuarial valuation techniques will be used to estimate the present value of guaranteed and non-guaranteed benefits. The study will compare contract values under different guarantee structures to determine their effect on overall unit-linked insurance valuation. A quantitative research approach will be adopted using representative unit-linked insurance contract data and relevant actuarial and investment assumptions. Cash flow and fund value models will be developed to project premiums, investment returns, policy charges, guaranteed benefits, and other contractual obligations. Scenario and sensitivity analyses will be conducted to assess changes in contract values under alternative investment returns, guarantee levels, mortality assumptions, and policy durations. The study is expected to reveal that guaranteed minimum benefits increase the actuarial value of unit-linked insurance obligations because insurers may be required to provide additional payments when investment fund values fall below guaranteed levels. The findings may also indicate that the financial effect of guarantees becomes more significant under adverse investment conditions and for contracts with higher guarantee levels or longer durations. Variations in mortality and investment assumptions may further influence the estimated value of these guarantees. The study will provide useful information for actuaries, life insurance companies, investment managers, regulators, and other stakeholders involved in unit-linked insurance valuation. Understanding the financial effect of guaranteed minimum benefits may support improved liability measurement, reserve estimation, capital planning, product pricing, and risk management. The findings may also assist insurers in evaluating the financial implications of offering guaranteed benefits within investment-linked products. The study concludes that guaranteed minimum benefits are an important consideration in the valuation of unit-linked insurance because they can increase insurers’ potential liabilities when investment performance is unfavorable. It is therefore recommended that insurers and actuaries explicitly incorporate guarantee features into valuation models and regularly conduct sensitivity and scenario analyses under different market and mortality conditions. Appropriate valuation of guaranteed minimum benefits may improve liability accuracy and support the long-term financial sustainability of unit-linked insurance products.

Keywords: Guaranteed minimum benefits, unit-linked insurance, insurance valuation, guaranteed benefits, minimum death benefits, minimum maturity benefits, investment-linked insurance, fund values, investment returns, actuarial valuation, insurance liabilities, policy guarantees, mortality assumptions, market risk, actuarial modelling.