GUARANTEED INVESTMENT CONTRACT - GIC

A guaranteed investment contract (GIC) is a type of investment-oriented product offered by insurance companies. In guaranteed investment contracts, insurance companies are responsible for the payment of a predetermined annual crediting rate over the life of the investment plus the principal amount. In return for the repayment corresponded at maturity, the firm receives a single premium. Therefore, the term ‘guaranteed’ does not refer to guarantees provided by third parties, and the investors are exposed to the same credit risks associated to any corporate obligation (insolvency and default of the insurance company). For this reason the interest rate is in any case higher than those earned by U.S. Treasury securities of the same maturity and it depends on the market conditions and the rating of the issuer. Guaranteed investment contracts are typically sold by pension plan sponsors as pension investments with maturity ranging from one up to 20 years.

Bibliography
Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.

Editor: Bianca GIANNINI
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