Dynamic pricing of guarantee products

#This application relates generally to methods and apparatuses, including computer program products, for dynamic pricing of guarantee products.

#Insurance companies have traditionally offered insurance products which allow customers to receive a schedule of payments at a later date in exchange for a purchase of the product. Often, the future schedule of payments is guaranteed by the insurance company, provided that specific criteria and requirements of the product are met. These products can take many forms, such as annuity products, standalone living benefit products, and other similar products. The guarantees can take many forms, including guaranteed minimum death benefits, income benefits, withdrawal benefits, lifetime withdrawal benefits, account value guarantees (e.g., GMAB), and other similar guarantees.

#An insurance company may offer a product that provides a guaranteed benefit to investors, where the product is linked to an investment account (e.g., 401(k) account, IRA account, or mutual fund account) held by the investor. These investment accounts can have an allocation of assets across different investment types, from conservative investments such as cash and government securities to more risky investments such as international stocks and small company equities. The product may be in the form of a certificate that provides guaranteed benefit payments for a particular time period, such as over the life of the investor (and, in some cases, his or her spouse), if a specified event occurs, such as if the assets in the linked investment account are depleted, and subject to certain conditions.

#The advantages of the invention described above, together with further advantages, may be better understood by referring to the following description taken in conjunction with the accompanying drawings. The drawings are not necessarily to scale, emphasis instead generally being placed upon illustrating the principles of the invention.

#FIG. 1 is a block diagram of a timeline for a guarantee product offered by an insurance company to be linked to an investment account held by an investor.

#FIG. 2 is a block diagram of a system for dynamic pricing of guarantee products.

#The techniques described herein provide the advantage of enabling insurance companies to provide dynamic pricing for guaranteed investment products such as annuities, according to the level of risk assigned to a covered asset pool associated with the product. The techniques provide the advantage of giving the owner additional freedom and flexibility to invest as he or she deems appropriate without being limited to specific groups or tiers of funds. The techniques also protect the guarantor by charging for the risk appropriately based on the asset mix selected by the owner.

#FIG. 1 is a block diagram of a timeline 100 for a guarantee product offered by an insurance company (also called a guarantor) to be linked to an investment account held by an investor. The timeline 100 begins when the investor purchases the product from the guarantor, and ends when the insured event occurs. The guarantee product offered by the guarantor can include an immediate or deferred fixed or variable annuity, a contingent deferred annuity, or a standalone living benefit. The guarantee associated with the guarantee product can include a guaranteed minimum death benefit, an income benefit, a withdrawal benefit, a lifetime withdrawal benefit, or an account value guarantee. The product can take the form of a certificate issued by the guarantor on the assets in the investment account, although other forms of the product are included within the spirit and scope of the invention. For example, the investor may purchase the certificate for protection in the event of potential future withdrawals from the account, sub-par or poor market performance, or both. The certificate provides guaranteed benefit payments over a certain time period if and when an insured event occurs. For example, the time period can be the life of the investor (and, if applicable, his spouse under a joint certificate). The insured event occurs at a date after the guarantee product is purchased, and the insured event triggers the stream of benefit payments under the guarantee product. In some embodiments, the insured event is the depletion of the assets in the investment account (also called the “Covered Asset Pool” or “Covered Asset Pool account”) during a defined time period (e.g., the lifetime of the investor (or spouse)), when the depletion occurs other than by an excess withdrawal from the investment account. In some embodiments, an excess withdrawal occurs when the investor withdraws more than the amount covered by the certificate (also called the “Coverage Amount”) during a time period as defined by the certificate. In some embodiments, the defined time period is one year (also called the “Certificate Year”).

#In some embodiments, the assets held in the Covered Asset Pool are to comply with requirements set forth by the guarantor issuing the certificate. For example, the assets must be of a certain type and/or the total value of the assets must meet a required minimum value (e.g., $100,000) or a required maximum value (e.g., $1 M). In some embodiments, the investor, and optionally his spouse, must be of a particular age when purchasing the certificate (e.g., between 45 and 90). In some embodiments, the age difference between the investor and his spouse must not exceed a maximum value (e.g., 10 years) in order to purchase a joint certificate.