Bringing cost transparency to the life annuity market

Donnelly, Catherine; Guillén, Montserrat; Nielsen, Jens Perch

doi:10.1016/j.insmatheco.2014.02.003

Cited by 57 publications

(64 citation statements)

References 34 publications

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“…Thus an income paid to a participant is dependent on their own personal account value. Different rules of calculating the longevity credits are proposed in Donnelly et al (2014); Sabin (2010); Stamos (2008). Bräutigam et al (2017) compare the tontine of Donnelly et al (2014) against that of Milevsky and Salisbury (2016), but are unable to fit the two structures into a single, over-arching structure.…”

Section: A Brief Review Of Modern Tontinesmentioning

confidence: 99%

“…Different rules of calculating the longevity credits are proposed in Donnelly et al (2014); Sabin (2010); Stamos (2008). Bräutigam et al (2017) compare the tontine of Donnelly et al (2014) against that of Milevsky and Salisbury (2016), but are unable to fit the two structures into a single, over-arching structure. Similarly, Donnelly (2015) compares the scheme of Donnelly et al (2014) against the group selfannuitization scheme of Piggott et al (2005), and finds that the financial outcomes due to pooling longevity risk are similar if there are enough people in each scheme.…”

Section: A Brief Review Of Modern Tontinesmentioning

confidence: 99%

“…Supposing that the force of mortality of retiree is λ(t) and their tontine account value is Y (t) at time t, then longevity credits are paid into their tontine account at the rate λ(t)Y (t). This is the perfect pool version of (Donnelly et al, 2014;Stamos, 2008).…”

Section: A New Tontine Structure That Incorporates Bequestsmentioning

confidence: 99%

“…This is the justification for allowing the re-balancing the tontine and bequest accounts of a retiree -the longevity credits transferred from the tontine account to the bequest account are owned by the retiree and are not the collective property of the tontine members. Tontine mechanisms which are actuarially fair at all moments in time are proposed in Donnelly et al (2014) and Sabin (2010).…”

Section: A New Tontine Structure That Incorporates Bequestsmentioning

confidence: 99%

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Modern tontine with bequest: Innovation in pooled annuity products

Bernhardt

Donnelly

2019

Insurance: Mathematics and Economics

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We introduce a new pension product that offers retirees the opportunity for a lifelong income and a bequest for their estate. Based on a tontine mechanism, the product divides pension savings between a tontine account and a bequest account. The tontine account is given up to a tontine pool upon death while the bequest account value is paid to the retiree's estate. The values of these two accounts are continuously re-balanced to the same proportion, which is the key feature of our new product.Our main research question about the new product is what proportion of pension savings should a retiree allocate to the tontine account. Under a power utility function, we show that more risk averse retirees allocate a fairly stable proportion of their pension savings to the tontine account, regardless of the strength of their bequest motive. The proportion declines as the retiree becomes less risk averse for a while. However, for the least risk averse retirees, a high proportion of their pension savings is optimally allocated to the tontine account. This surprising result is explained by the least risk averse retirees seeking the potentially high value of the bequest account at very old ages.

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Section: A Brief Review Of Modern Tontinesmentioning

confidence: 99%

Section: A Brief Review Of Modern Tontinesmentioning

confidence: 99%

Section: A New Tontine Structure That Incorporates Bequestsmentioning

confidence: 99%

Section: A New Tontine Structure That Incorporates Bequestsmentioning

confidence: 99%

See 2 more Smart Citations

Modern tontine with bequest: Innovation in pooled annuity products

Bernhardt

Donnelly

2019

Insurance: Mathematics and Economics

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“…Moreover, while costs involved in redistributions that arise via bargaining can be fully transparent, market-based solutions currently often lack cost transparency. Recent literature, however, devotes significant attention to the development of insurance products with enhanced cost transparency (see, e.g., Donnelly et al, 2014). Our results suggest that even when cost transparency is enhanced and the market becomes more complete, parties may still prefer risk redistribution via bargaining over market solutions as long as there is no consensus regarding the probability distribution of future survival rates.…”

Section: Resultsmentioning

confidence: 79%

Redistribution of longevity risk: The effect of heterogeneous mortality beliefs

Boonen

Waegenaere

Norde

2017

Insurance: Mathematics and Economics

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Redistribution of longevity risk: The effect of heterogeneous mortality beliefsBoonen, T.J.; De Waegenaere, A.; Norde, H. General rightsIt is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). Disclaimer/Complaints regulationsIf you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library: http://uba.uva.nl/en/contact, or a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible. Abstract Existing literature regarding the natural hedge potential that arises from combining different longevity-linked liabilities typically does not address the question how changes in the liability mix can be obtained. We consider firms who aim to exploit the benefits of natural hedge potential by redistributing their risks, and characterize the risk redistributions that will arise when the parties bargain for a redistribution of risk that weakly benefits them all. We analyze the effects of heterogeneity in the beliefs regarding the probability distribution of future mortality rates on the properties of these risk redistributions, and provide a numerical illustration for a case where an insurer with a portfolio of term assurance contracts and a pension fund with a portfolio of life annuities redistribute their risks. JEL-Classification: C71, C78, G22, J11

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Tackling longevity risk by means of financial compensation

Palo

2019

Soft Comput

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Bringing cost transparency to the life annuity market

Cited by 57 publications

References 34 publications

Modern tontine with bequest: Innovation in pooled annuity products

Modern tontine with bequest: Innovation in pooled annuity products

Redistribution of longevity risk: The effect of heterogeneous mortality beliefs

Tackling longevity risk by means of financial compensation

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