Systems and Methods for Implementing An Index-Linked Insurance Product

Abstract

An index-linked insurance product having an annual guarantee is implemented having a maximized hedged investment budget. A net premium payment is allocated to a fixed income investment and an annual fixed income yield is projected. The maximized hedged investment budget is determined by deducting from the projected annual fixed income a product spread and an estimated cost of the annual guarantee. The estimated cost of the annual guarantee is allocated to a risk fund. The maximized hedged investment budget is allocated to a hedged investment designed to generate proceeds for supporting index-linked earnings credited to the insurance product. Upon expiration of the product term, if the amount credited based on the index-linked earnings does not equal to at least the compounded annual guarantee, the amount credited is increased to be equal to the compounded annual guarantee. The increased credit may be supported using funds from the risk fund and other reserves.

1 . A method for implementing an index-linked insurance product comprising:
 investing a net premium payment in a fixed income investment;   determining an investment budget from projected fixed income yield of the fixed income investment;   determining a crediting budget by subtracting from the investment budget a product spread;   based on a historical analysis, determining a historical average cost of the annual guarantee;   determining a hedged investment budget by subtracting from the crediting budget the historical average cost of the annual guarantee;   creating a segment of the index-linked insurance product having a term, an annual guarantee, an annual minimum growth rate, an annual capped growth rate, and an initial index-linked value equal to the hedged investment budget;   investing the hedged investment budget in a hedged investment;   determining an initial index value; and   at the end of each one year period for the duration of the term:
 determining the performance rate of the index, 
 liquidating any profits earned by the hedged investment, 
 determining a current index-linked value of the segment by crediting to the initial index-linked value the greater of the annual minimum growth rate or the performance rate of the index limited by the annual capped growth rate, and 
 resetting the initial index-linked value of the segment to be equal to the current index-linked value. 
   
   
   
       2 . The method of  claim 1 , further comprising at the end of each one year period for the duration of the term, optionally resetting the annual minimum growth rate and the annual capped growth rate of the segment. 
   
   
       3 . The method of  claim 1 , wherein the segment further has a participation rate; and
 wherein determining the current index-linked value comprises crediting to the initial index-linked value the greater of the annual minimum growth rate or the performance rate of the index times the participation rate limited by the annual capped growth rate.   
   
   
       4 . The method of  claim 1 , further comprising, at the end of the term, crediting to the segment the greater of the current index-linked value or the annual guarantee compounded over the term. 
   
   
       5 . The method of  claim 1 , wherein the historical analysis comprises a back-casting of a historical performance rate of the index in relation to the segment over an analysis period to determine the average cost of the annual guarantee during a plurality of hypothetical terms of the segment. 
   
   
       6 . The method of  claim 1 , wherein the average cost of the annual guarantee comprises an average amount of funds that are likely to be required to be added to the current index-linked value in order to credit the segment at least the amount of the annual guarantee compounded over the term. 
   
   
       7 . The method of  claim 1 , wherein the term is greater than one year. 
   
   
       8 . The method of  claim 1 , wherein the hedged investment comprises a purchase of a plurality of at-the-money call options and a sale of a plurality of call options having a strike price that is out-of-the-money by an amount equal to the annual capped growth rate. 
   
   
       9 . The method of  claim 1 , wherein investing the premium payment in the fixed income investment comprises:
 deducting an investment budget from the premium payment; and   investing the balance of the premium payment in the fixed income investment.   
   
   
       10 . A method for administering an index-linked insurance product using an annual reset indexing method, an annual guarantee, an annual minimum growth rate, an annual capped growth rate and a participation rate, the method comprising:
 performing a historical analysis to determine a historical average cost of the annual guarantee based on the annual minimum growth rate, the annual capped growth rate, the participation rate, and the term according to the annual reset model;   allocating to a crediting budget funds amounting to a fixed income yield generated by investing a portion of a premium payment in a fixed income budget;   determining a hedged investment budget by deducting from the crediting budget the historical average cost of the annual guarantee;   allocating the deducted historical average cost of the annual guarantee to a risk fund; and   investing the hedged investment budget in a hedged investment in order to generate index-linked earning for the index-linked insurance product.   
   
   
       11 . The method of  claim 10 , further comprising deducting a product spread from the fixed income yield prior to determining the crediting budget. 
   
   
       12 . The method of  claim 10 , wherein the historical analysis comprises a back-casting of a historical performance rate of the index in relation to the segment over an analysis period to determine the average cost of the annual guarantee during a plurality of hypothetical terms of the segment. 
   
   
       13 . The method of  claim 10 , wherein the average cost of the annual guarantee comprises an average amount of funds that are likely to be required to be added to the index-linked earnings in order to credit the segment in the amount of the annual guarantee compounded over the term. 
   
   
       14 . The method of  claim 10 , wherein the term is greater than one year. 
   
   
       15 . The method of  claim 10 , wherein the hedged investment comprises a purchase of a plurality of at-the-money call options and a sale of a plurality of call options having a strike price that is out-of-the-money by an amount equal to the annual capped growth rate. 
   
   
       16 . A method for administering an index-linked insurance product having a maximized hedged investment budget comprising:
 investing at least a portion of a premium payment in a fixed income investment;   projecting an amount of annual fixed income to be yielded by the fixed income investment;   based on a historical analysis, determining a historical average cost of an annual guarantee for the index-linked insurance product;   determining a hedged investment budget by subtracting from the projected amount of annual fixed income the historical average cost of the annual guarantee; and   investing the hedged investment budget in a hedged investment in order to generate index-linked earnings for the index-linked insurance product.   
   
   
       17 . The method of  claim 16 , further comprising deducting a product spread from the projected amount of annual fixed income prior to determining the hedged investment budget. 
   
   
       18 . The method of  claim 16 , wherein the historical analysis comprises a back-casting of a historical performance rate of the index in relation to the index-linked insurance product over an analysis period to determine the average cost of the annual guarantee during a plurality of hypothetical terms of the index-linked insurance product. 
   
   
       19 . The method of  claim 18 , wherein the average cost of the annual guarantee comprises an average amount of funds that are likely to be required to be added to the index-linked earnings in order to credit the index-linked insurance product in the amount of the annual guarantee compounded over a term of the index-linked insurance product. 
   
   
       20 . The method of  claim 16 , wherein the hedged investment comprises a purchase of a plurality of at-the-money call options and a sale of a plurality of call options having a strike price that is out-of-the-money by an amount equal to the annual capped growth rate.