The impact of MT strategies on risk and value distribution of unit-linked insurance portfolio

Abstract

PURPOSE: The analysis conducted demonstrates that in the case of unit-linked insurance, unlike classic insurance, the composition of the reference portfolio gains much more significance than the insurance period.

DESIGN/METHODOLOGY/APPROACH: Hence, this type of insurance cannot be thought of only in the long term but, above all, the investment strategy should be adapted to market realities. Knowledge of the impact of the use of MT strategies on the parameters of the distribution of the portfolio value will enable the insured to control and possibly change the strategy of conduct during the insurance period by adjusting the composition of the portfolio to the market situation, and thus ensuring a payment tailored to their own needs.

FINDINGS: In Poland, in the case of unit-linked insurance, the financial risk is mainly borne by the insured who is responsible for any negative effects of their investment decisions. Therefore, changes in the actuarial value of a unit-linked insurance portfolio have been examined depending on the managers’ use of market-timing (MT) strategies.