MCFAM Student Research - Outcome analysis of Indexed Universal Life Insurance based on Monte Carlo Simulation

Songyu Yan and Ian Luo
University of Minnesota
Friday, September 20, 2019 - 5:30pm to 6:30pm
Vincent Hall 16

Indexed Universal Life (IUL) Insurance was developed to harness thepower of equity market returns with downside protection. However IUL iscurrently illustrated using a static credited rate which masks market returnvolatility inherent in its structure. As a result, what policyholders see as expectedperformance maybe far from reality in many cases. In our research, we modeledthe pricing algorithms of major IUL products and applied scenario testing usingMonte Carlo simulation of indices used in IUL products. The statistical variance ofindices leads to vastly different results than what is currently demonstrated inmany cases, and this variance may cause the failure of the policy. Our researchindicates a better method for demonstrating policy performance would be basedon an outcome analysis rather than the static method currently in use.Bios: Songyu Yan: https://www.linkedin.com/in/songyu-yan-826bb2126/          Ian Luo: https://www.linkedin.com/in/yifei-luo-9051b1170/