Abstract
With-profit life insurance contracts are designed with a return smoothing collective savings component sharing the investment risks amongst different generations of policyholders. We analyze the resulting implications from the point of view of a multi-asset mean-variance investor by evaluating different kinds of investment strategies. As a result, we report a discount in the certainty equivalent rate of return for giving up the intergenerational risk transfer which ranges between 0.74 and 62 basis points annually. We further show, that its magnitude is increasing in risk aversion, decreasing with the investment horizon and higher for a liquid compared to an illiquid life insurance investment.
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