Exchanging uncertain mortality for a cost

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

doi:10.1016/j.insmatheco.2012.11.001

Cited by 40 publications

(25 citation statements)

References 11 publications

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“…We are aware that a traditional theoretical measure expressing the value of the annuity to the individual is the expected utility (which, in the framework of longevity-linked structures, has been considered, e.g. by Valdez et al 2006;Stamos 2008;Donnelly et al 2013;Maurer et al 2013;Milevsky & Salisbury 2015;Bravo & de Freitas 2018;Chen et al 2019). We do not perform an assessment in this respect because we prefer to address quantities which are easier to understand by the individual.…”

Section: Valuation In the Individual's Perspectivementioning

confidence: 99%

“…Examples of non-insurance arrangements in which the longevity risk is shared among the individuals are provided by group self-annuitisation pools (see, e.g. Piggot et al 2005;Valdez et al 2006;Qiao & Sherris 2012), pooled annuity funds (see Stamos 2008;Donnelly et al 2013), and annuity overlay funds (see Donnelly et al 2014;Donnelly 2015). The common idea here is that liabilities must always be funded; this target is reached by letting the benefit amount decrease, if required by the available asset amount.…”

Section: Introductionmentioning

confidence: 99%

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Linking annuity benefits to the longevity experience: alternative solutions

Olivieri

Pitacco

2020

Ann. actuar. sci.

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The uncertainty regarding financial returns and the life expectancy, joint to the reduced social security benefits, increasingly expose individuals to the risk of outliving their post-retirement assets. However, the demand for longevity guarantees remains low, due to high costs. The providers, on their side, may be reluctant to offer non-adjustable longevity guarantees, as the risk is long term and difficult to predict. It is therefore convenient to reconsider the design of longevity guarantees. In particular, a participating structure, providing a link to some longevity experience, could allow a sharing of losses, and possibly profits, resulting in a reduction of the cost of the retained guarantee. The literature review suggests a number of alternatives to define a longevity-linking arrangement, but the topic is not yet completely explored. It is useful, in particular, to have a common framework, under which the various solutions can be interpreted and compared, also with a view to the trade-off between the retained risk and the cost of the guarantee. Developing a general structure describing longevity-linked post-retirement benefits is the main purpose of this paper. Allowing for aggregate longevity risk, we then examine suitable solutions for insurance products.

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Section: Valuation In the Individual's Perspectivementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Linking annuity benefits to the longevity experience: alternative solutions

Olivieri

Pitacco

2020

Ann. actuar. sci.

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“…(2017) and motivated by Donnelly et al . (2013, 2014) and Stamos (2008). As the authors point out, while the pooled annuity overlay fund includes the word annuity, the concept is quite distinct from that of a standard life annuity.…”

Section: Additional Detailsmentioning

confidence: 99%

Self-selection and risk sharing in a modern world of life-long annuities

et al. 2018

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Communicating a pension product well is as important as optimising the financial value. In a recent study, we showed that up to 80% of the value of a pension lump sum could be lost if customer communication failed. In this paper, we extend the simple customer interaction of the earlier contribution to the more challenging lifetime annuity case. Using a simple mobile phone device, the pension customer can select the life-long optimal investment strategy within minutes. The financial risk trade-off is presented as a trade-off between the pension paid and the number of years the life-long annuity is guaranteed. The pension payment decreases when investment security increases. The necessary underlying mathematical financial hedging theory is included in the study.

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“…As the pooled annuity overlay fund allows individuals to decide how they want to invest their wealth on the financial market, overall financial gains depend on their risk preferences. Donnelly et al (2014) report extensive numerical simulations to illustrate how the performance of a pooled annuity overlay fund compares to that of a mortality-linked fund (as introduced by Donnelly et al, 2013). The latter is similar in many respects to a pooled annuity fund, insofar as the participants also pool their wealth but in this instance the insurer (or the seller of the product), as opposed to the participants, bears the volatility of mortality.…”

Section: 1the Pooled Annuity Overlay Fundmentioning

confidence: 99%

Facing Up to Longevity with Old Actuarial Methods: A Comparison of Pooled Funds and Income Tontines

Bräutigam

Guillén

Nielsen

2017

Geneva Pap Risk Insur Issues Pract

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We compare the concepts underlying modern actuarial solutions to pension insurance and present two recently developed pension productspooled annuity overlay funds (based on actuarial fairness) and equitable income tontines (based on equitability). The two products adopt specific approaches to the management of longevity risk by mutualizing it among participants rather than transferring it completely to the insurer. As the market would appear to be ready for such innovations, our study seeks to establish a general framework for their introduction. We stress that the notion of actuarial fairness, which characterizes pooled annuity overlay funds, enables participants to join and exit the fund at any time. Such freedom of action is a quite remarkable feature and one that cannot be matched by lifelong contracts.

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Exchanging uncertain mortality for a cost

Cited by 40 publications

References 11 publications

Linking annuity benefits to the longevity experience: alternative solutions

Linking annuity benefits to the longevity experience: alternative solutions

Self-selection and risk sharing in a modern world of life-long annuities

Facing Up to Longevity with Old Actuarial Methods: A Comparison of Pooled Funds and Income Tontines

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