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- Title
GIC Alternatives: Contract Structure, Risk Sharing and Asset Composition.
- Authors
Fenn, George W.
- Abstract
Guaranteed investment contracts (GIC) have proven to be among the most popular life insurance pension products ever developed in the U.S. Between 1980 and 1990, GIC outstanding increased from under 20 billion to around 160 billion dollars. As of 1993, GIC funds remain popular with defined contribution plan participants, and consequently the defined contribution plan market continues to demand a product with the basic features of a GIC. In this article, GIC alternatives are presented. There are two striking differences between traditional general account GIC and GIC alternatives that are currently offered. The first difference relates to contract structure and the sharing of investment risk. GIC alternatives hand potentially large amounts of investment risk back to the plan, whereas traditional GIC are, in general, fully guaranteed. The second difference relates to asset composition. To date, virtually all GIC alternatives are backed by high-quality, publicly traded assets. In fact, the vast majority of these assets are government and agency bonds and mortgaged-backed securities. This article therefore, examines the economic function of a GIC and GIC alternatives.
- Subjects
GUARANTEED investment contracts; CONTRACTS; INSURANCE company investments; INVESTMENTS; LIFE insurance; PENSIONS; EMPLOYEE benefits
- Publication
Benefits Quarterly, 1993, Vol 9, Issue 2, p6
- ISSN
8756-1263
- Publication type
Article