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Insurance 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 deducted 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 index-linked 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 if necessary.
Insurance Claims
35. A method for implementing an index-linked life insurance product
having a term and an annual guarantee, comprising: allocating at
least a portion of a premium payment associated with the index-linked
life insurance product to a fixed income investment and projecting
an annual fixed income yielded for the fixed income investment;
determining a hedged investment budget based at least in part on
the projected annual fixed income yield and an estimated cost of
the annual guarantee over the term; allocating the hedged investment
budget to a hedged investment linked to an index in order to generate
proceeds for supporting an amount credited to the index-linked insurance
product based on index-linked earnings; and upon the occurrence
of a predetermined event, if the amount credited based on the index-linked
earnings is not equal to at least the annual guarantee compounded
over the term, using funds from one or more reserves or a risk fund
to increase the amount credited to be substantially equal to the
compounded annual guarantee.
36. The method of claim 35, wherein the predetermined event may
include expiration of the term, early surrender, or death.
37. The method of claim 35, wherein the length of the term is at
least one year.
38. The method of claim 35, wherein the term expires at death.
39. The method of claim 35, wherein the estimated cost of the annual
guarantee comprises an estimate of the funds for increasing the
index-linked earnings to approximately equal the annual guarantee
compounded over the term.
40. The method of claim 35, wherein the estimated cost of the annual
guarantee is determined, at least in part, through a historical
analysis comprising a back-casting of a historical performance rate
of the index over an analysis period to determine a cost of the
annual guarantee during a plurality of hypothetical terms of the
index-linked life insurance product.
41. The method of claim 35, wherein the index-linked insurance
product further has one or more features, wherein the features may
include at least one of an annual minimum growth rate, an annual
capped growth rate, and a participation rate; and wherein the estimated
cost of the annual guarantee comprises an estimate of the funds
for increasing the index-linked earnings to approximately equal
to the annual guarantee compounded over the term, taking into account
the features of the index-linked insurance product.
42. The method of claim 41, wherein one or more of the features
of the index-linked insurance product is selectively reset each
year during the term.
43. The method of claim 35, wherein determining the hedged investment
budget includes deducting from the projected annual fixed income
yield a product spread and the estimated cost of the annual guarantee.
44. The method of claim 43, further comprising, allocating the
deducted estimated cost of the annual guarantee to the risk fund.
45. The method of claim 35, wherein the hedged investment comprises
an at-the-money hedge.
46. The method of claim 35, the index-linked insurance product
further comprises an annual capped growth rate; and 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.
47. The method of claim 46, wherein the annual capped growth rate
is selectively reset each year during the term.
48. The method of claim 35, wherein the hedged investment is designed
to yield the greater of the annual guarantee or a percentage gain
attributable to the index.
49. The method of claim 35, wherein the risk fund comprises funds
deducted from a plurality of insurance products.
50. A method for implementing an index-linked life insurance product,
comprising: determining an investment budget by projecting a fixed
income yield to be produced by investing a net premium payment in
a fixed income investment; creating a segment of the index-linked
life insurance product having a term, wherein the term is comprised
of a plurality of term periods; determining a hedged investment
budget based at least in part on deducting from the investment budget
an estimated cost of an annual guarantee over the term associated
with the index-linked life insurance product; allocating the hedged
investment budget to a hedged investment designed to generate proceeds
for supporting index-linked earnings to be credited to the index-linked
life insurance product; determining an initial index value; at the
end of each term period for the duration of the term, determining
an index value for the ended term period, determining a current
segment value by crediting to the segment an amount based on the
index-linked earnings comprising a percentage difference between
the index value for the ended term period and the initial index
value, and realizing any proceeds generated by the hedged investment;
and upon the occurrence of a predetermined event, if the amount
credited to the segment based on the index-linked earnings does
not equal to at least the annual guarantee compounded over the term,
using funds from one or more reserves or a risk fund to increase
the amount credited to the segment to be substantially equal to
the compounded annual guarantee.
51. The method of claim 50, wherein the predetermined event may
include expiration of the term, early surrender, or death.
52. The method of claim 50, wherein the length of the term is at
least one year.
53. The method of claim 50, wherein the term expires at death.
54. The method of claim 50, wherein the length of each term period
is one year.
55. The method of claim 50, wherein the index value for the ended
term period is an anniversary index value.
56. The method of claim 50, wherein the estimated cost of the annual
guarantee comprises an estimate of the funds for increasing the
amount credited to the segment to approximately equal the annual
guarantee compounded over the term.
57. The method of claim 50, wherein the estimated cost of the annual
guarantee is determined, at least in part, through a historical
analysis comprising a back-casting of a historical performance rate
of the index over an analysis period to determine a cost of the
annual guarantee during a plurality of hypothetical terms of the
index-linked life insurance product.
58. The method of claim 50, wherein the segment includes one or
more features, wherein the features may include at least one of
an annual minimum growth rate and an annual capped growth rate;
and wherein determining a current segment value comprises crediting
to the segment the amount based on the index-linked earnings comprising
the greater of the annual minimum growth rate or the percentage
difference between the index value for the ended term period and
the initial index value limited by the annual capped growth rate.
59. The method claim 58, further comprising at the end of each
term period for the duration of the term, selectively resetting
one or more of the features of the segment.
60. The method of claim 58, wherein the segment further has a participation
rate; and wherein determining the current segment value comprises
crediting to the segment the amount based on the index-linked earnings
comprising the greater of the annual minimum growth rate or the
percentage difference between the index value for the ended term
period and the initial index value times the participation rate
limited by the annual capped growth rate.
61. The method of claim 50, wherein determining the hedged investment
budget includes deducting from the projected annual fixed income
yield a product spread and the estimated cost of the annual guarantee.
62. The method of claim 61, further comprising, allocating the
deducted estimated cost of the annual guarantee to the risk fund.
63. The method of claim 50, wherein the hedged investment comprises
an at-the-money hedge.
64. The method of claim 50, 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 an annual capped growth rate.
65. The method of claim 64, wherein the annual capped growth rate
is selectively reset each term period during the term.
66. The method of claim 50, wherein the hedged investment is designed
to yield the greater of the annual guarantee or the percentage difference
between the index value for the ended term period at expiration
of the term and the initial index value, limited by any features
of the segment.
67. The method of claim 50, wherein the risk fund comprises funds
deducted from a plurality of insurance products.
68. A system for implementing an index-linked insurance product
having a term comprised of a plurality of term periods, an annual
guarantee and a hedged investment budget comprising: an input device
for inputting data to identify the term, the annual guarantee, and
an estimated cost of the annual guarantee over the term; and a processor
functionally coupled to the input device for receiving the data
and thereafter executing computer-executable instructions for: monitoring
index-linked earnings to be credited to the index-linked insurance
product based on performance rate of an index, crediting an amount
to the index-linked insurance product based on the index-linked
earnings, the index-linked earnings being supported by proceeds
generated by a hedged investment made using the hedged investment
budget, wherein the hedged investment budget is determined based
at least in part on allocating at least a portion of a premium payment
to a fixed income investment and projecting an annual fixed income
yield of the fixed income investment, and deducting from the projected
annual fixed income yield an estimated cost of the annual guarantee;
determining a guaranteed value of the index-linked insurance product
based on the annual guarantee; and upon the occurrence of a predetermined
event, if the amount credited based on the index-linked earnings
does not equal to at least the guaranteed value, using funds from
one or more reserves or a risk fund to increase the amount credited
to be substantially equal to the guaranteed value.
69. The method of claim 68, wherein the predetermined event may
include expiration of the term, early surrender, or death.
70. The method of claim 68, wherein the length of the term is at
least one year.
71. The method of claim 68, wherein the term expires at death.
72. The method of claim 68, wherein the length of each term period
is one year.
73. The system of claim 68, wherein the estimated cost of the annual
guarantee comprises an estimate of the funds for increasing the
index-linked earnings to approximately equal the annual guarantee
compounded over the term.
74. The system of claim 68, wherein the estimated cost of the annual
guarantee is determined through a historical analysis comprising
a back-casting of a historical performance rate of the index over
an analysis period to determine a cost of the annual guarantee during
a plurality of hypothetical terms of the index-linked insurance
product.
75. The system of claim 68, wherein the index-linked insurance
product further has one or more features, wherein the features may
include at least one of an annual minimum growth rate, an annual
capped growth rate, and a participation rate; and wherein the estimated
cost of the annual guarantee comprises an estimate of the funds
for increasing the index-linked earnings to approximately equal
to the annual guarantee compounded over the term, taking into account
the features of the index-linked insurance product.
76. The system of claim 75, wherein one or more of the features
of the index-linked insurance product is selectively reset each
term period during the term.
77. The system of claim 68, wherein the hedged investment comprises
an at-the-money hedge.
78. The system of claim 68, the determination of the hedged investment
budget by the processor includes deducting from the projected annual
fixed income yield a product spread and the estimated cost of the
annual guarantee.
79. The system of claim 78, further comprising, allocating the
deducted estimated cost of the annual guarantee to the risk fund.
80. The system of claim 68, wherein the index-linked insurance
product further has an annual capped growth rate; and 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.
81. The system of claim 80, wherein the annual capped growth rate
is selectively reset each term period during the term.
82. The system of claim 68, wherein the hedged investment is designed
to yield the greater of the annual guarantee or a percentage gain
attributable to the index.
83. The system of claim 68, wherein the risk fund comprises funds
deducted from multiple insurance products.
Insurance Description
TECHNICAL FIELD
[0001] The present invention relates generally to index-linked
life insurance products where the interest rate for the life insurance
product is based on the performance of an equity market index and
where the life insurance product offers a minimum guaranteed annual
interest rate. More particularly, the present invention relates
to maximizing a hedged investment budget associated with an index-linked
life insurance product, while also setting aside sufficient monies
to satisfy the minimum guaranteed annual interest rate.
BACKGROUND OF THE INVENTION
[0002] Traditional life insurance products are known in the art
as "fixed" life insurance products. Fixed life insurance
products offer a minimum guaranteed annual interest rate (referred
to herein as an "annual guarantee") on policy funds net
of insurance and administrative charges. The insurance company generally
invests a portion of the premium in fixed income securities such
as bonds and mortgages. The yield on such fixed income investments
determines a gross return from which product charges may be deducted
to then calculate the policy credited rate and/or dividends. Regardless
of the performance of the insurance company's investment in the
fixed income securities, the credited rate and/or cash values of
the fixed life insurance product cannot be less than a guaranteed
minimum.
[0003] "Variable" life insurance products are also popular
with consumers and are also well known in the art. Variable life
insurance products generally allow the consumer to determine how
the premium (net of insurance, administrative, and product spread
charges) will be invested by directing the funds to various sub-account
choices that are available within the product. These sub-account
choices carry distinct risks, as there is neither an annual guarantee
on the investment performance nor a guarantee of the principal allocated
to the sub-accounts. Sub-accounts usually carry risks similar to
those of equity or bond mutual funds, including the upside potential
and downside risk to loss of principal.
[0004] "Index-linked" life insurance products are more
recent introductions into the market. Such products typically provide
an annual guarantee like that provided by traditional fixed insurance
products. In an index-linked life insurance product, all or a portion
of the product's account value may be eligible for index-linked
earnings based on increases in a specified equity market index.
An index-linked life insurance product is typically credited with
the greater of the index-linked earnings rate or the annual guarantee
(determined on a compounded basis over an established time period)
on the applicable portion of the product's account value.
[0005] In administering the index-linked account within an index-linked
life insurance product, an insurance company typically invests a
portion of the premium in fixed income securities such as bonds
and mortgages. The investment yield on such fixed income securities
is referred to herein as the "investment budget." A product
spread, to cover expenses and profit, is usually deducted from the
investment budget to determine the "crediting budget."
The principal on the fixed income securities supports the index-linked
life insurance product's guaranteed principal.
[0006] Unlike traditional fixed life insurance products, where
the crediting budget is credited to the product, the crediting budget
in index-linked life insurance products is used to support the index-linked
earnings rate. To do this, the insurance company may invest a portion
of the crediting budget in a hedged investment designed to generate
proceeds that support the index-linked earnings to be credited to
the product. A hedged investment may take a variety of forms, but
typically involves the purchase and/or sale of options in the equity
market index. A hedged investment is typically structured to be
out-of-the-money by an amount equal to the annual guarantee.
[0007] In order to ensure that it will be able to cover the amount
of the annual guarantee, the typical insurance company does not
invest the entire crediting budget in a hedged investment. Rather,
the insurance company will set aside a portion (referred to herein
as the "guaranteed return budget") of the crediting budget
to back the annual guarantee over the specified time period. For
example, if the crediting budget is 6.5% and the annual guarantee
associated with the index-linked life insurance product is 3%, the
insurance company would typically deduct and set aside 3% per year
as the guaranteed return budget. The balance of the crediting budget
after deduction of the guaranteed return budget (i.e. a balance
of 3.5%) is available as the hedged investment budget for purchase
of index-linked hedged investments.
[0008] Thus, in prior index-linked life insurance products, the
guaranteed return budget is credited back to the product each year
in order to cover the annual guarantee and any yearly proceeds realized
from the hedged investment are used to support any index-linked
earnings that exceed the annual guarantee. The amount of index-linked
earnings that can be supported through a hedged investment is obviously
limited by the amount of the crediting budget that can be allocated
to purchase the hedged investment. In other words, the larger the
hedged investment budget, the greater the potential for index-linked
earnings generated by the hedged investment, and the more attractive
the index-linked crediting terms the insurance company can offer
to its consumer. However, insurance companies have heretofore been
unable to increase the hedged investment budget of an index-linked
life insurance product without incurring significant risk that insufficient
funds are set aside to cover the annual guarantee.
[0009] Accordingly, there remains a need for an index-linked life
insurance product having a maximized hedged investment budget for
purposes of generating maximum index-linked earnings, while maintaining
a sufficient guaranteed return budget to cover the annual guarantee.
SUMMARY OF THE INVENTION
[0010] The present invention meets the above-described needs by
providing inventive systems and methods for implementing an index-linked
life insurance product having a maximized hedged investment budget.
According to one aspect of the invention, a portion of a premium
payment is allocated to a fixed income investment. An amount of
annual fixed income to be yielded by the fixed income investment
is projected in order to determine an investment budget. A crediting
budget is then determined by subtracting from the investment budget
a product spread. Based on a historical analysis or another analysis
method, the cost of the annual guarantee is estimated to determine
the guaranteed return budget. A hedged investment budget is determined
by deducting from the crediting budget the estimated cost of the
annual guarantee. The hedged investment budget is allocated to a
hedged investment in order to generate proceeds to support the index-linked
earnings of the index-linked life insurance product. The estimated
cost of the annual guarantee may be set aside in a risk fund, through
a pooling of multiple products' guaranteed return budgets. The hedged
investment may be structured to be an at-the-money hedge and any
proceeds generated thereby may be used to support the index-linked
earnings to be credited under the terms of the index-linked life
insurance product. The risk fund may be used to supplement the proceeds
generated by the hedged investment in the event that the index-linked
earnings are not at least equal to the annual guarantee.
[0011] In accordance with another aspect of the invention, the
annual guarantee is not actually credited to the index-linked product
annually, but is guaranteed on a compounded basis over a specified
term of the index-linked life insurance product. The index-linked
insurance product is credited annually with an amount based on index-linked
earnings. The estimated cost of the annual guarantee comprises an
estimate of funds that are likely to be required in order to increase
the amount credited based on index-linked earnings to be equal to
the annual guarantee compounded over the term of the index-linked
life insurance product. The term of the index-linked life insurance
product is greater than one year and in one embodiment may be set
at five years. A longer term of the index-linked life insurance
product increases the odds that the index-linked earnings (supported
by proceeds from a hedged investment) over the term will exceed
the compounded annual guarantee over the term. As the odds increase
that the index-linked earnings will exceed the compounded annual
guarantee, the estimated cost of the guarantee decreases, which
translates into a maximized hedged investment budget.
[0012] In accordance with another aspect of the present invention,
the hedged investment may comprise 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. Other types of hedged investments
are also possible. For example, the hedged investment may be designed
to yield the greater of the annual guarantee or a percentage gain
attributable to the index.
[0013] According to another aspect of the present invention, the
cost of the annual guarantee may be estimated using a historical
analysis method. A historical analysis method may comprise a back-casting
of a historical performance rate of the index over an analysis period
to estimate the cost of the annual guarantee during a plurality
of hypothetical terms of the index-linked life insurance product.
[0014] In accordance with another aspect of the invention, an index-linked
life insurance product has an annual guarantee and one or more of
the following features: an annual minimum growth rate, an annual
capped growth rate and a participation rate. A method for implementing
such an index-linked life insurance product involves determining
an estimated cost of the annual guarantee based on one or more features
of the index-linked life insurance product. Funds amounting to a
fixed income yield generated by investing a portion of a premium
payment in a fixed income investment are allocated, after possibly
deducting a product spread, to a crediting budget. A hedged investment
budget is determined by deducting from the crediting budget the
estimated cost of the annual guarantee. The deducted estimated cost
of the annual guarantee may be allocated to a risk fund and the
hedged investment budget may be allocated to a hedged investment
in order to generate proceeds for supporting the index-linked earnings
to be credited to the index-linked life insurance product.
[0015] In accordance with yet another aspect of the invention,
a method is provided for implementing an index-linked life insurance
product whereby at least a portion of a premium payment is allocated
to a fixed income investment and an amount of annual fixed income
to be yielded by the fixed income investment is projected. An estimated
cost of an annual guarantee for the index-linked life insurance
product is determined based on a historical analysis or another
analysis method. A hedged investment budget is determined by subtracting
from the projected amount of annual fixed income the estimated cost
of the annual guarantee and a product spread. The hedged investment
budget is then allocated to a hedged investment in order to generate
proceeds that may be used to support index-linked earnings to be
credited to the index-linked life insurance product.
[0016] A segment within the index-linked product may be created
having a term, an annual guarantee, and one or more features comprising
an annual minimum growth rate, an annual capped growth rate and
a participation rate. An initial index value is determined at the
beginning of the term. At the end of each one-year period for the
duration of the term, the performance rate of the index is determined,
any proceeds generated by the hedged investment are realized, and
a current segment value is determined by crediting the initial segment
an amount based on the index-linked comprising the greater of the
annual minimum growth rate or the performance rate of the index
limited by the annual capped growth rate. One or more features of
the segment, such as the annual minimum growth rate or the annual
capped growth rate, may optionally be reset at the end of each one-year
period. The segment may also have a participation rate, in which
case the current segment value is determined by crediting to the
segment 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. At the end of the term, or upon early termination
or death, if the current segment value does not amount to at least
the annual guarantee compounded over the term, funds from the risk
fund are used to increase the amount credited to the segment to
be equal to the compounded annual guarantee.
[0017] These and other aspects, features and advantages of the
present invention will become apparent upon a reading of the following
description of certain exemplary embodiments and with reference
to the accompanying drawings.
BRIEF DESCRIPTION OF DRAWINGS
[0018] FIG. 1 is a table illustrating an exemplary index-linked
life insurance product and a hypothetical performance chart therefor
in accordance with an exemplary embodiment of the present invention.
[0019] FIG. 2 is a block diagram generally illustrating the apportionment
and allocation of premium payments in accordance with an exemplary
index-linked life insurance product of the present invention.
[0020] FIG. 3 is a flow chart illustrating an exemplary method
for determining an estimated cost of an annual guarantee in accordance
with an exemplary embodiment of the present invention.
[0021] FIG. 4 is a table illustrating hypothetical estimated costs
of various annual guarantees determined through historical analysis
in accordance with an exemplary embodiment of the present invention.
[0022] FIG. 5 is a flow chart illustrating segment processing for
an index-linked life insurance product in accordance with an exemplary
embodiment of the present invention.
[0023] FIG. 6 is a block diagram illustrating an exemplary computing
environment for implementing one or more aspects of the present
invention.
DETAILED DESCRIPTION OF EXEMPLARY EMBODIMENTS OF THE INVENTION
[0024] The present invention relates to maximizing a hedged investment
budget associated with an index-linked life insurance product, while
also setting aside sufficient funds to cover a minimum annual guaranteed
interest rate (herein referred to as an "annual guarantee.")
In accordance with an exemplary embodiment of the present invention,
the amount of funds set aside to cover an annual guarantee (such
funds are also referred to herein as the "guaranteed return
budget") is determined based on an estimate of the cost of
the annual guarantee over a particular term. The cost of an annual
guarantee is contemplated as being the amount of funds that the
insurance company will have to produce (over and above any index-linked
earnings to be credited under the terms of the index-linked life
insurance product) in order to credit the insured with finds in
the amount of the annual guarantee.
[0025] As is well known in the art, an index-linked life insurance
product is credited with index-linked interest earnings that are
linked to the performance of an external equity market index. One
of the most commonly known equity market indices is the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500
Index"). Many other equity market indices are well known to
those of ordinary skill in the art. The present invention contemplates
the use of any equity market index in the administration of an index-linked
life insurance product. Those skilled in the art will appreciate
that an index-linked life insurance product may include several
segments, each of which may have its own term and annual guarantee.
For example, an index-linked life insurance product, or a segment
thereof, may be designated as having a five-year term. Thus, at
the end of its five-year term, the index-linked product (or segment)
will have earned at least a minimum compounded annual percentage
rate equivalent to the specified annual guarantee.
[0026] In addition to an annual guarantee, an index-linked life
insurance product may include a number of other features. One feature
of an index-linked life insurance product is the indexing method
used to calculate index-linked earnings. The indexing method is
the approach used to measure the performance of the equity market
index. Some of the most common indexing methods known in the art
include annual reset indexing (ratcheting), high-water mark indexing
and point-to-point indexing. According to annual reset indexing,
index-linked earnings, if any, are added to the index-linked life
insurance product each year in proportion to any gain in the index
value. According to high-water mark indexing, index-linked earnings,
if any, are added to the index-linked life insurance product at
the end of the term based on the difference between the highest
index value during the term (typically using anniversary index values
only) and the initial index value at the start of the term. According
to point-to-point indexing, index-linked earnings, if any, are added
to the index-linked life insurance product at the end of the term
based on the difference between the index value at the end of the
term and the initial index value at the start of the term. Those
skilled in the art will appreciate that the principles of the present
invention are not limited by the type of indexing method chosen
for an index-linked life insurance product.
[0027] Another feature of an index-linked life insurance product
is its participation rate. A participation rate dictates the percentage
of the index gains that will be used to calculate index-linked earnings
for the index-linked life insurance product. For example, if the
index yields a gain of 10% and the participation rate is set at
80%, the index-linked life insurance product will be credited with
index-linked earnings of 8% (10%.times.80%=8%). A participation
rate is typically guaranteed for a specific period (e.g., ranging
from one year to the entire term of the index-linked life insurance
product). When that period is over, the insurance company may set
a new participation rate for the next period.
[0028] An annual capped growth rate is another feature that may
be associated with an index-linked life insurance product. An annual
capped growth rate represents the maximum rate of index-linked earnings
that will be credited to the index-linked life insurance product
per year, regardless of the performance of the index. Similarly,
an index-linked life insurance product may include an annual minimum
growth rate. An annual minimum growth rate represents the minimum
index-linked earnings that will be credited to the index-linked
life insurance product per year, regardless of the performance of
the index. An annual minimum growth rate is also known as a "floor."
As an illustration, an annual minimum growth rate of 0% assures
that even if the index decreases in value during the year, the index-linked
earnings credited to the index-linked life insurance product will
be zero and not negative.
[0029] Those skilled in the art will appreciate that the principles
of the present invention may be applied to any type of index-linked
life insurance product, regardless of the particular features thereof.
Accordingly, any descriptions herein with respect to particular
types of index-linked life insurance product having particular features
are to be understood as being with reference to exemplary embodiments
of the present invention only.
[0030] The following description will hereinafter refer to the
drawings, in which like numerals indicate like elements throughout
the several figures. FIG. 1 is a table illustrating an exemplary
index-linked life insurance product 100 and a hypothetical performance
chart 120 therefor. The exemplary index-linked life insurance product
100 described with respect to FIG. 1 will serve as a discussion
example throughout the remainder of this specification. However,
those skilled in the art will recognize that the principles of the
present invention may by employed with many other types of index-linked
life insurance product. Accordingly, the exemplary index-linked
life insurance product 100 described herein should in no way be
viewed as a limitation of the scope of the present invention.
[0031] The exemplary index-linked life insurance product 100 includes
features comprising an annual reset indexing method 102, an annual
guarantee 104 of 3%, an annual capped growth rate 106 of 10%, an
annual minimum growth rate 108 of 0% and a participation rate 110
of 100%. The annual capped growth rate 106, the annual minimum growth
rate 108 and the participation rate 110 may each be modified on
an annual basis, if necessary. However the example of FIG. 1 assumes
that all features of the index-linked life insurance product remain
constant over its 5-year segment term 112. In general the annual
capped growth rate 106 may be determined based on the hedged investment
budget of the segment and the net cost of the hedged investment.
Thus, the greater the hedged investment budget, the higher the annual
capped growth rate 106 may be. Relatively higher interest rate environments
tend to allow higher annual capped growth rates 106. The net cost
of a hedged investment, such as one involving the purchase and sale
of options, may be influenced by treasury rates, implied volatility
of the equity market to which the index-linked life insurance product
is linked, and dividend yield on the underlying stocks that make
up the equity market index. Generally, option prices increase as
interest rates and implied volatility increase. Conversely, options
prices tend to decrease as dividend yields increase.
[0032] The hypothetical performance chart 120 illustrates the hypothetical
performance of a segment of the exemplary index-linked life insurance
product 100 for each year 122 of the hypothetical 5-year term 112.
For each year 122, the hypothetical performance chart 120 tracks
the hypothetical index growth rate 124 relative to an initial index
value, the index-linked earnings 126 to be credited to the segment,
the current segment value 128, the guaranteed earnings 130 attributable
to the annual guarantee, and the guaranteed segment value 132. As
shown, the annual guarantee 104 of 3% (compounded) will amount to
a guaranteed segment value 132 of +15.93% at the end of the 5-year
term 112. Based on the annual reset indexing method 102, the annual
capped growth rate 106 of 10%, the annual minimum growth rate 108
of 0% and the participation rate 110 of 100%, the segment will achieve
a current segment value 128 of +27.05% at the end of the 5-year
term 112.
[0033] More precisely, in year 122 1 index-linked earnings 126
of +10% are to be credited to the current segment value 128 because
the index growth rate 124 of +10% times the participation rate 110
of 100% is less than or equal to the annual capped growth rate 106
of 10%. In year 122 2, index-linked earnings 126 of 0% are credited
to the current segment value 128 (i.e., the current segment value
128 remains at +10%) because the index growth rate 124 of -2% times
the participation rate 110 of 100% is less than the annual minimum
growth rate 108 of 0%. In year 122 3 index-linked earnings 126 of
+5% (compounded) are credited to the current segment value 128 because
the index growth rate 124 of +5% times the participation rate 110
of 100% is less than or equal to the annual capped growth rate 106
of 10%. In year 122 4, index-linked earnings 126 of 0% are credited
to the current segment value 128 (i.e., the current segment value
128 remains at 15.5%) because the index growth rate 124 of -10%
times the participation rate 110 of 100% is less than the annual
minimum growth rate 108 of 0%. Lastly, in year 122 5 index-linked
earnings 126 of +10% (compounded) are credited to the current segment
value 128 because the index growth rate 124 of +20% times the participation
rate 110 of 100% is greater than the annual capped growth rate 106
of +10%.
[0034] It may be seen that in certain years 122 (e.g., year 2 and
year 4), the guaranteed earnings 130 are greater than the index-linked
interest 126. However, in accordance with the present invention
the determination as to whether the guaranteed earnings 130 are
to be credited to the segment is not made until the end of the term
112 (or until death or early surrender, if applicable). Thus, in
accordance with the features of the exemplary index-linked life
insurance product 100, the current segment value 128 of +27.05%
at the end of the term 112 is credited to the segment as opposed
to the guaranteed segment value 132 of +15.93%. Furthermore, in
the example provided, even though the index growth rate 124 under-performs
the annual guarantee 104 in two of the exemplary years, the current
segment value 128 at the end of each of those years is actually
greater than the guaranteed segment value 132 at that point in time.
Those skilled in the art will appreciate that a hedged investment
may be established in order to generate proceeds that are substantially
equal to the index-linked earnings 126.
[0035] FIG. 2 is a block diagram generally illustrating the apportionment
and allocation of funds within an exemplary index-linked life insurance
product 100 of the present invention. As shown, a premium payment
202 may be periodically made in relation to the exemplary index-linked
life insurance product 100. A portion of the premium payment 202
may be allocated to premium loads or other costs, expenses or fees.
After any initial deductions are taken from the premium payment
202, the net premium payment 203 may be invested in a fixed income
investment, such as securities involving bonds or mortgages, Treasury
bills, term deposits, etc.
[0036] Fixed income yield 205 from the fixed income investment
204 may be used as an investment budget 206. A product spread 207
and any other administrative fees may be deducted from the investment
budget 206. The concept of a product spread 207 is well-known in
the art and generally refers to a relatively small percentage of
the investment budget 206 that is deducted and allocated to the
insurance company (e.g., in order to cover expenses or profits 208).
The balance 209 of the investment budget is referred to herein as
the crediting budget 210. The crediting budget 210 is used to generate
proceeds that will support the index-linked earnings to be credited
to the exemplary index-linked life insurance product 100.
[0037] In order to generate the proceeds that will support the
index-linked earnings to be credited to the index-linked life insurance
product, the insurance company may initiate a hedged investment
214. A hedged investment 214 may, for example, involve buying and
selling options for shares in the equity market index. Typically,
the hedged investment budget 213 is equal to the crediting budget
210 less a guaranteed return budget. In accordance with an exemplary
embodiment of the present invention, the guaranteed return budget
is equal to an estimated cost of the annual guarantee 211. The estimated
cost of the annual guarantee 211 may be determined by back-casting
the performance of the equity market index relative to the features
of the index-linked life insurance product 100.
[0038] By way of example, the exemplary index-linked life insurance
product 100 is administered using annual reset indexing and has
an annual minimum growth rate, an annual capped growth rate, a participation
rate, an annual guarantee and a term. Under the framework of the
exemplary index-linked life insurance product 100, a historical
analysis may be performed in order to determine the average amount,
if any, by which the equity index under-performed the annual guarantee
during an analysis period. In other words, the estimated cost of
the annual guarantee 211 is the average amount of funds that the
insurance company will have to provide, over and above any index-linked
earnings (supported by proceeds from the hedged investment) in order
to credit the index-linked life insurance product with funds equal
to the amount of the annual guarantee. An exemplary method for determining
an estimated cost of an annual guarantee 211 will be more fully
explained below with reference to FIG. 3 and FIG. 4. The estimated
cost of an annual guarantee 211 for multiple products may be pooled
in a risk fund 212 maintained by the insurance company for the purpose
of covering annual guarantees on a plurality of such products, when
needed. The hedged investment budget 213 may be allocated to a hedged
investment 214 in order to generate proceeds that will support the
index-linked earnings to be credited under the terms of the index-linked
life insurance product 100.
[0039] FIG. 3 is a flow chart illustrating an exemplary method
for determining an estimated cost of an annual guarantee 211 using
a historical analysis method in accordance with an exemplary embodiment
of the present invention. The exemplary method 300 begins at starting
block 301 and advances to step 302, where the analysis period is
determined. The analysis period may be any period of time in which
historical performance data is available for the chosen equity market
index. For example, historical performance data is available for
the S&P 500 index dating back at least as far as Jan. 1, 1950,
so the analysis period may be set as Jan. 1, 1950 to the first day
of a recent month. At step 304, the historical term of each segment
of the index-linked life insurance product is determined. As is
known in the art, an index-linked life insurance product may have
a particular duration, such as the life of the insured, while segments
of the index-linked life insurance product may have discrete terms
(e.g., 5 years.)
[0040] Next at step 306, the initial index value on the first day
of the first month of the analysis period is determined. At step
308, an index value is determined on each anniversary date until
the end of the segment term. By way of example, if Jan. 1, 1950
is chosen as the first day of the first month of the analysis period
and the segment term is 5 years, the index values would be determined
on the anniversary dates of Jan. 1, 1951, Jan. 1, 1952, Jan. 1,
1953, Jan. 1, 1954 and Jan. 1, 1955. Taking the features of the
index-linked life insurance product into account, such as the indexing
method, a specified annual minimum growth rate, an annual capped
growth rate and a participation rate, the cost that would be incurred
(after taking into account the index-linked earnings) if a certain
annual guarantee had been offered during that specified historical
term may be calculated at step 310 using the initial index value
and the subsequent anniversary index values within the historical
term. Again, the estimated cost of the annual guarantee is contemplated
as being the amount of funds that the insurance company will have
to provide over and above any index-linked earnings (supported by
proceeds from a hedged investment) in order to credit the segment
with funds in the amount of the annual guarantee. As a simple example,
assume (1) an annual guarantee of +3%, compounding to a guaranteed
interest rate of +15.93% over a 5 year term, (2) an index gain of
+15.9% over the 5 year term, (3) a participation rate of 100% resulting
in index-linked earnings of +15.9% over the 5 year term, and (4)
a hedged investment designed to generate proceeds that match the
index-linked earnings. Based on these assumptions, the insurance
company would have to provide an additional +0.03% in excess of
the proceeds generated by the hedged investment in order to cover
the +3% annual guarantee over the 5 year term.
[0041] At step 312, the estimated cost of the annual guarantee
over the historical term of the segment is recorded as a data point.
Then at step 314, a determination is made as to whether the end
of the analysis period has been reached. If the end of the analysis
period has not been reached, an initial index value on the first
day of the next month of the analysis period is determined at step
316. After incrementing to the next month for calculation of a new
initial index value, the method returns to step 308 for a determination
of the index values on each subsequent anniversary date until the
end of the next historical segment term. Those skilled in the art
will appreciate that the analysis period may be expressed in units
other than years with monthly increments. For example, an analysis
period may be expressed as a number of months, weeks, or days, etc.
Similarly, data points may be calculated in increments of weeks,
days, etc. Again, following step 308 the method proceeds to step
310 for a calculation of the cost of the annual guarantee over the
next historical term of the segment. This calculated cost of the
annual guarantee may be recorded as another data point at step 312.
When it is finally determined that the end of the analysis period
has been reached at step 314, the average of all data points is
calculated at step 318 to determine an estimated cost of the annual
guarantee based on the historical data. After determination of the
estimated cost of the annual guarantee, the method ends at step
320.
[0042] FIG. 4 is a table 400 illustrating hypothetical estimated
costs of a 3% annual guarantee 402 and a 5% annual guarantee 404.
The table 400 may have been compiled according to the exemplary
method for determining an estimated cost of an annual guarantee
described above with reference to FIG. 3. Those skilled in the art
will appreciate, however, that other methods for determining an
estimated cost of an annual guarantee may also be possible. The
present invention is therefore intended to encompass any analysis
method for determining estimated costs of an annual guarantee. Those
skilled in the art will appreciate that the foregoing analysis utilizes
a simplifying assumption that the insu company will need to supplement
index-linked earnings with amounts from the risk fund only at the
end of the specified term. As in known in the art, however, the
compounded annual guarantee is typically compared to the current
account value upon death or surrender of the product, which may
occur prior to the end of the term. A more precise estimate of the
cost of the annual guarantee would take into account the actuarial
decrement from such deaths and surrenders prior to the end of the
term. For the sake of simplicity, however, that analysis is not
illustrated herein.
[0043] The table 400 assumes an index-linked life insurance product
that employs annual reset indexing and has an annual minimum growth
rate (0%), an annual capped growth rate, a participation rate (100%),
an annual guarantee and a term. The estimated costs of the 3% annual
guarantee 402 and the 5% annual guarantee 404 are calculated for
multiple capped growth rates 406 and multiple segment terms 408.
With focus on a 5-year term, it may be seen that the estimated cost
of the 3% annual guarantee ranges from 0.03% (for a 9% capped growth
rate) to 0.00% (for a 15% capped growth rate). Similarly, the estimated
cost of the 5% annual guarantee over a 5-year term ranges from 0.42%
(for a 9% capped growth rate) to 0.11% (for a 15% capped growth
rate). As demonstrated, the higher the capped growth rate, the lower
the estimated cost of the annual guarantee is likely to be. As is
also shown in the table 400, the estimated cost of the annual guarantee
decreases as the length of the segment term 408 increases.
[0044] Accordingly, as shown by way of example only with reference
to FIG. 3 and FIG. 4, an exemplary embodiment of the present invention
contemplates that a historical analysis or other analysis method
may be performed in order to more precisely estimate the cost of
a certain annual guarantee. By more precisely estimating the cost
of an annual guarantee, the insurance company is able to more precisely
estimate the percentage of the crediting budget that is to be deducted
as a guaranteed return budget for covering the risk associated with
the annual guarantee. In many cases, a more precise estimation of
the cost of an annual guarantee will translate into a relatively
smaller guaranteed return budget and thus a maximized hedged investment
budget.
[0045] FIG. 5 is a flow chart illustrating segment processing for
an index-linked life insurance product in accordance with an exemplary
embodiment of the present invention. The segment processing method
500 begins at starting block 501 and advances to step 502, where
a segment with an annual guarantee is created within the index-linked
life insurance product. Each segment of the index-linked life insurance
product has a term, which is usually a number of years.
[0046] Next at step 504, a net premium payment for the segment
is invested in a fixed income investment. A fixed interest investment
may be an investment in securities involving bonds or mortgages,
or Treasury bills, bonds, term deposits, or the like. Investing
the entirety of the net premium payment in the fixed interest investment
supports the index-linked life insurance product's guaranteed principle.
As will be explained below, an exemplary embodiment of the present
invention contemplates that an investment budget may be determined
based on the projected fixed income yield of the fixed income investment.
However, those skilled in the art will appreciate that a more precise
calculation would take into account the hedged investment budget
in projecting the fixed income yield of the fixed income investment
because the hedged investment budget will be invested at the same
time the fixed income investment is made.
[0047] At step 506, the initial index value is determined and the
initial segment value is established. Many equity market indices
are well known to those of ordinary skill in the art. The S&P
500 index is a popular index for which performance data is widely
available. The initial index value is the index number (e.g., of
the S&P 500 index) on the first day of the term of the segment.
As will be explained below, earning will be credited to the segment
value based on changes in the index value.
[0048] At step 508, the guaranteed segment value is calculated
based on the annual guarantee. As will be understood by those of
skill in the art, the annual guarantee may be expressed as a daily
compounded interest rate. Therefore, the guaranteed segment value
may be calculated at any point during the term of the segment.
[0049] At step 510, the hedged investment budget is determined
based on the projected fixed income from the fixed interest investment,
the estimated cost of the annual guarantee and the product spread
associated with the index-linked life insurance product. As was
discussed above, the estimated cost of the annual guarantee may,
in one embodiment, be calculated by back-casting the performance
of the equity market index in relation to the features of the particular
index-linked life insurance product (see description of FIG. 3,
above). The product spread associated with the index-linked life
insurance product represents a percentage of the investment budget
that is to be allocated to expenses and profits of the insurance
company. The product spread is deducted from the investment budget
to create a crediting budget. The estimated cost of the annual guarantee
is deducted from the crediting budget to form the hedged investment
budget.
[0050] At step 512, the participation rate, annual capped growth
rate and annual minimum growth rate are determined for the segment.
The participation rate represents the percentage of the up-side
index performance that may be credited to the segment. For example,
given a participation rate of 50% and an index performance gain
of +10%, the segment may be credited with index-linked interest
of +5%. The insurance company may set the participation rate to
be less than 100%. The annual capped growth rate of the segment
represents the maximum amount of annual index-linked earnings that
may be credited to the segment. For example, given a participation
rate of 100%, an annual capped growth rate of +10%, and an index
performance gain of +15%, the segment may be credited with index-linked
earnings of +10%. The annual minimum growth rate represents the
minimum amount of annual index-linked earnings that may be credited
to the segment. As an example, the insurance company may set the
minimum growth rate at 0% so that the index-linked earnings credited
to the segment in a year will be zero and not negative even if the
index declines in value. The level of the annual capped growth rate,
the participation rate and the annual minimum growth rate are interrelated
and are typically dictated by the amount of hedged investment that
will be used to support the index-linked earnings. These features
are typically adjustable each year during the segment term, often
subject to certain maximums and minimums.
[0051] At step 514, the hedged investment budget is allocated to
a hedged investment. Hedged investments may take many forms that
are well known in the art. An exemplary hedged investment may be
structured as an at-the-money hedge. By way of example only, one
possible hedged investment may involve using the hedged investment
budget to purchase call options having a strike price of the current
index value (i.e., "at-the-money") and simultaneously
selling an equal number of call options having a strike price that
is above the current index value by an amount equal to the annual
capped growth rate. As an illustration, given a current index value
of 1500 and an annual capped growth rate of 10%, a number of call
options may be purchased having a strike price of 1500 and a number
of call options may be sold having a strike price of 1650. Another
example of a hedged investment may involve using the hedged investment
budget to trade in futures and to purchase put options to manage
down-side risk.
[0052] At step 516, a determination is made as to whether any activity
has occurred that affects the segment. The insurance company may
establish a basic interest account for the insured, in which the
insured may be required to maintain a minimum balance for the insured.
Therefore certain activities (e.g., withdrawals and/or deductions,
etc.) regarding the index-linked life insurance product may occur
with respect to the basic interest account and without having any
effect on the segment. Also, other segments may be established and
an order of segment processing priority may be determined such that
activity may affect one segment, but not this particular segment.
If, however, an activity is detected that does affect the segment,
a determination is made at step 518 as to whether a deduction or
withdrawal has occurred.
[0053] If a deduction or withdrawal has occurred, the method advances
to step 520 where the deduction and/or withdrawal is debited against
both the current segment value and the guaranteed segment value.
Following step 520, or if no deduction or withdrawal was detected
at step 518, the method proceeds to step 522 for a determination
as to whether the index-linked life insurance product has been surrendered
(or in the case of a life insurance policy, whether the death of
the insured has occurred.) Upon a determination of surrender or
death at step 522, the method proceeds to step 534 where it is determined
whether the current segment value is at least equal to the guaranteed
segment value. If the current segment value is at least equal to
the guaranteed segment value, the method ends at step 538. However
if it is determined at step 534 that the current segment value is
less than the guaranteed segment value, the amount credited to the
segment is increased to be equal to the guaranteed segment value
at step 536. In order to support the increased credit, the insurance
company may utilize funds from the risk fund and/or other reserves.
The risk fund may be under-funded in the event that death or surrender
occurs prior to the expected end of the segment term, unless the
estimated cost of the annual guarantee reflects actuarial decrements
of surrender and death, as noted above.
[0054] If no activity affecting the segment was detected at step
516 or if no surrender or death was detected at step 522, the method
progresses to step 524 where it is determined whether the segment
anniversary has occurred. If the segment anniversary has not occurred,
the method is repeated from step 516, as described previously, until
a segment anniversary is detected at step 524. Upon detection of
a segment anniversary, the current segment value is calculated (or
recalculated) based on the performance of the index, the participation
rate, the annual capped growth rate, and the annual minimum growth
rate at step 526. Then, any proceeds generated by the hedged investment
are realized at step 528. At step 530, the segment is credited with
the current segment value (supported by proceeds generated by the
hedged investment).
[0055] At step 532, a determination is made as to whether the end
of the segment term has been reached. If the end of segment term
has not been reached, the method returns to step 510, where a hedged
investment budget is redetermined. From step 508, the method progresses
as previously described until the end of the segment term is detected
at step 532.
[0056] When the end of the segment term is detected at step 532,
the method advances to step 534, where it is determined whether
the current segment value is at least equal to the guaranteed segment
value. If the current segment value is at least equal to the guaranteed
segment value, the method ends at step 538. However if it is determined
at step 534 that the current segment value is less than the guaranteed
segment value, the amount credited to the segment is increased to
be equal to the guaranteed segment value at step 536. In order to
support the increased credit, the insurance company may utilize
funds from the risk fund and/or other reserves. Following step 536,
the method ends at step 538.
[0057] Those skilled in the art will recognize that methods for
implementing an index-linked life insurance product in accordance
with the present invention may be implemented in whole or in part
by way of one or more computer systems. FIG. 6 and the following
discussion are intended, by way of example only, to provide a brief
and general description of a suitable computing environment for
implementing the present invention. Although the system shown in
FIG. 6 represents a conventional personal computer system 600, those
skilled in the art will recognize that the invention also may be
implemented using other types of computer system configurations.
The computer system 600 includes a processing unit 621, a system
memory 622 and a system bus 623 that couples the system memory 622
to the processing unit 621. The system memory 622 includes read
only memory (ROM) 624 and random access memory (RAM) 625. A basic
input/output system 626 (BIOS), containing basic routines that help
to transfer information between elements within the personal computer
system 600, such as during start-up, is stored in ROM 624.
[0058] The personal computer system 600 further includes a hard
disk drive 627, a magnetic disk drive 628, e.g., to read from or
write to a removable disk 629, and an optical disk drive 630, e.g.,
for reading a CD-ROM disk 631 or to read from or write to other
optical media. The hard disk drive 627, magnetic disk drive 628,
and optical disk drive 630 are connected to the system bus 623 by
a hard disk drive interface 632, a magnetic disk drive interface
633, and an optical drive interface 634, respectively. The drives
and their associated computer-readable media provide nonvolatile
storage for the personal computer system 600. Although the description
of computer-readable media above refers to a hard disk, a removable
magnetic disk and a CD-ROM disk, it should be appreciated by those
skilled in the art that other types of media that are readable by
a computer system, such as magnetic cassettes, flash memory cards,
digital video disks, Bernoulli cartridges, and the like, may also
be used in the exemplary operating environment.
[0059] A number of program modules may be stored in the persistent
storage devices (e.g., hard disk drive 627) and the memory 622 (e.g.,
RAM 625), including an operating system 635. As will be apparent
to those of ordinary skill in the art, the present invention may
be implemented through one or more program modules comprising computer-executable
instructions for performing one or more of the various method of
the invention. By way of illustration only, various embodiment of
the invention may be implemented using a Product Administration
program module 636 for administering an index-linked life insurance
product of the present invention, a Segment Processing program module
637 for processing segments within an index-linked life insurance
product of the present invention (may be a included within the Product
Administration program module 636), a Cost of Annual Guarantee Estimation
program module 638 for determining an estimated cost of an annual
guarantee in accordance with the present invention, and/or a Hedged
Investment Management program module 639 for managing hedged investments.
As will be appreciated by those of skill in the art, the present
invention may be implemented using these and/or other program modules
and any combination thereof. Those skilled in the art will also
appreciate that a computer-readable medium may comprise a memory
storage medium, a propagated data signal, etc.
[0060] Other input devices (not shown) may include a microphone,
satellite dish, scanner, or the like. These and other input devices
are often functionally coupled to the processing unit 621 through
a serial port interface 646 that is coupled to the system bus 623,
but may be connected by other interfaces, such as a game port or
a universal serial bus (USB). A display device 647 is also connected
to the system bus 623 via an interface, such as a video adapter
648. In addition to display device, personal computer systems typically
include other peripheral output devices (not shown), such as speakers
or printers.
[0061] The personal computer system 600 may operate in a networked
environment using logical connections to one or more remote computer
systems, such as a remote computer system 649. The remote computer
system 649 may be a server, a mainframe, a router, a peer device
or other common network node, and typically includes many or all
of the elements described above relative to the personal computer
system 600, although only a storage device 650 has been illustrated
in FIG. 6. The logical connections depicted in FIG. 6 include a
local area network (LAN) 651 and a wide area network (WAN) 652.
Such networking environments are commonplace in offices, enterprise-wide
computer networks, intranets and the Internet.
[0062] When used in a LAN networking environment, the personal
computer system 600 is connected to the LAN 651 through a network
interface 653. When used in a WAN networking environment, the personal
computer system 600 typically includes a modem 654 or other means
for establishing communications over the WAN 652, such as the Internet.
The modem 654, which may be internal or external, is connected to
the system bus 623 via the serial port interface 646. In a networked
environment, program modules depicted relative to the personal computer
system 600, or portions thereof, may be stored in the remote memory
storage device. It will be appreciated that the network connections
shown are exemplary and other means of establishing a communications
link between the computer systems may be used. It will be further
appreciated that the invention could equivalently be implemented
on host or server computer systems other than personal computer
systems, and could equivalently be transmitted to the host computer
system by means other than a CD-ROM, for example, by way of the
network connection interface 653.
[0063] Based on the foregoing, it will be appreciated that the
present invention relates to an index-linked life insurance product
implemented in such a manner as to maximize a hedged investment
budget, while also setting aside sufficient funds to cover an annual
guarantee. Various methods for implementing an index-linked life
insurance product in accordance with the present invention have
been described herein by way of example only. Many other modifications,
features, embodiments and operating environments of the present
invention will become evident to those of skill in the art. It should
be appreciated that many aspects of the present invention were described
above by way of example only and are, therefore, not intended as
required or essential elements of the invention. It should be understood,
therefore, that the foregoing relates only to certain embodiments
of the invention, and that numerous changes may be made therein
without departing from the spirit and scope of the invention as
defined by the following claims. |