Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario

We consider annuity designs in which the benefit amount is allowed to fluctuate (up or down), based on a given mortality/longevity experience. This way, guarantees are relaxed in respect of traditional annuity arrangements. On the other hand, while the annuitant is exposed to the risk of a future re...

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Autor principal:	Annamaria Olivieri
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	mortality/longevity-linked annuities aggregate longevity/mortality risk longevity guarantee periodic longevity fee Insurance HG8011-9999
Acceso en línea:	https://doaj.org/article/5e3cb9ae4ef147799aa0a72efae84921
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spelling	oai:doaj.org-article:5e3cb9ae4ef147799aa0a72efae849212021-11-25T18:56:05ZDesigning Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario10.3390/risks91101892227-9091https://doaj.org/article/5e3cb9ae4ef147799aa0a72efae849212021-10-01T00:00:00Zhttps://www.mdpi.com/2227-9091/9/11/189https://doaj.org/toc/2227-9091We consider annuity designs in which the benefit amount is allowed to fluctuate (up or down), based on a given mortality/longevity experience. This way, guarantees are relaxed in respect of traditional annuity arrangements. On the other hand, while the annuitant is exposed to the risk of a future reduction of the benefit amount because of higher longevity, he/she can immediately take advantage of a lower premium loading, as well as of a future increase of the benefit amount in the case of higher mortality. Flexibility in the annuity design could be welcomed by individuals, as the conservative features of traditional products partly explain their lack of attractiveness in most markets. To further contribute to the flexibility of the product, we suggest a pricing structure based on periodic fees applied to the policy fund, instead of the usual upfront loading at issue. Periodic fees are more suitable to support a revision of the arrangement after issue, which is currently not allowed in traditional annuity products. We show that periodic fees can be introduced by identifying a discount factor to be used for pricing and reserving. We assume stochastic mortality, and we compare alternative mortality/longevity linking solutions, by assessing the periodic fees and other quantities.Annamaria OlivieriMDPI AGarticlemortality/longevity-linked annuitiesaggregate longevity/mortality risklongevity guaranteeperiodic longevity feeInsuranceHG8011-9999ENRisks, Vol 9, Iss 189, p 189 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	mortality/longevity-linked annuities aggregate longevity/mortality risk longevity guarantee periodic longevity fee Insurance HG8011-9999
spellingShingle	mortality/longevity-linked annuities aggregate longevity/mortality risk longevity guarantee periodic longevity fee Insurance HG8011-9999 Annamaria Olivieri Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario
description	We consider annuity designs in which the benefit amount is allowed to fluctuate (up or down), based on a given mortality/longevity experience. This way, guarantees are relaxed in respect of traditional annuity arrangements. On the other hand, while the annuitant is exposed to the risk of a future reduction of the benefit amount because of higher longevity, he/she can immediately take advantage of a lower premium loading, as well as of a future increase of the benefit amount in the case of higher mortality. Flexibility in the annuity design could be welcomed by individuals, as the conservative features of traditional products partly explain their lack of attractiveness in most markets. To further contribute to the flexibility of the product, we suggest a pricing structure based on periodic fees applied to the policy fund, instead of the usual upfront loading at issue. Periodic fees are more suitable to support a revision of the arrangement after issue, which is currently not allowed in traditional annuity products. We show that periodic fees can be introduced by identifying a discount factor to be used for pricing and reserving. We assume stochastic mortality, and we compare alternative mortality/longevity linking solutions, by assessing the periodic fees and other quantities.
format	article
author	Annamaria Olivieri
author_facet	Annamaria Olivieri
author_sort	Annamaria Olivieri
title	Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario
title_short	Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario
title_full	Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario
title_fullStr	Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario
title_full_unstemmed	Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario
title_sort	designing annuities with flexibility opportunities in an uncertain mortality scenario
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/5e3cb9ae4ef147799aa0a72efae84921
work_keys_str_mv	AT annamariaolivieri designingannuitieswithflexibilityopportunitiesinanuncertainmortalityscenario
_version_	1718410525419765760

Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario

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