Optimal management of life insurance household portfolios in the long run

Financial innovation has induced in recent years a remarkable diversification of contract payoffs across financial and insurance secondary markets. An aggressive policy by financial intermediaries and institutional investors in search of sustainable operating profits is behind the observed market evolution. A growing proportion of hybrid asset classes, carrying financial and insurance features, can be found as a result in households' investment portfolios. This article explores the effects of such trend on households' allocation strategies from the perspective of individual optimal asset-liability management. A multistage stochastic programming problem with investment opportunities including mutual and pension funds as well as unit-linked contracts and annuities is formulated and solved. The introduction of intermediate investment and consumption objectives with inflation-adjusted living costs leads to the definition of a realistic household long-term financial planning problem whose key elements are summarised with reference to a real-world case problem.