Insurer Investment, Life Insurance Policy Choices, and Policy Surrender

This study develops a contingent framework to examine the contract issuance of alternative unit-linked insurance plans (ULIPs) considering policy surrender. We show that the extension of the aggressive/conservative-plan policy surrender date enhances policyholder protection and insurer default risk when the two optimal guaranteed rates of the programs remain fixed. Increasing aggressive-plan policy surrenders improves policyholder protection and insurer survival when the optimal invested-asset interest rate remains unchanged. Increasing conservative-plan policy surrenders negatively impacts policyholder protection but supports insurer survival. Our results complement the literature by demonstrating that ULIPs are relevant to policyholder protection and insurer survival in the asset-liability matching management.