The Impact of Dynamic Surrender on Guarantees and Options in Life Insurance

Early termination of an insurance contract (surrender) and sharing of the investment return are the two basic option features of traditional insurance products, such as term insurance and endowment insurance. Managing the process of insurance policies surrenders leads us to research the dynamic of surrender. All the examples use the methods for calculating the technical provisions and the profit set out in Solvency II and the international financial reporting standard IFRS 17, valid since 2023. The paper also presents examples of the valuation of surrender value options in the case of dynamic policyholder behaviour. The Monte Carlo approach through the use of stochastic models places a value on investment sharing and surrenders value options. Using a dynamic policyholder surrender behaviour technique leads to a more significant impact on the profit.