This paper examines the consequences for a life annuity insurance company if the solvency II solvency capital requirements (SCR) are calibrated based on expected shortfall (ES) instead of value-at-risk (VaR). We focus on the risk modules of the SCRs for the three risk classes equity risk, interest rate risk and longevity risk. The stress scenarios are determined using the calibration method pro...

/RÉSUMÉ National annuity markets: features and implications This paper describes a number of national annuity markets, the types of products typically available, the demand for these products, the value for money on offer and the dynamics of the supply side. It explores supply and demand characteristics, asking what the main forces are that drive these dynamics and how they might be recognised ...

We develop a theory for valuing non-diversifiable mortality risk in an incomplete market. We do this by assuming that the company issuing a mortality-contingent claim requires compensation for this risk in the form of a pre-specified instantaneous Sharpe ratio. We apply our method to value life annuities. One result of our paper is that the value of the life annuity is identical to the upper go...

In this paper, I analyze consumption, aggregate savings,output and welfare implications of …ve di¤erent social security arragements whenever there is demographic uncertanity. Following Bohn(2002), I analyze the e¤ect of an uncetain population growth in an extended version of a modi…ed Life-cycle model developed by Gertler(1999). Population growth dampens savings and output under all arrangement...

This paper examines household decisions about whether or not to annuitize retirement resources. A lifecycle model of consumption, implemented with the use of dynamic programming techniques, is used to construct a utility-based measure of annuity value for individuals and couples in the Health and Retirement Survey. Variation in the calculated “annuity equivalent wealth” arises from differences ...

At, or about, the age of retirement, most individuals must decide what additional fraction of their marketable wealth, if any, should be annuitized. Annuitization means purchasing a nonrefundable life annuity from an insurance company, which then guarantees a lifelong consumption stream that cannot be outlived. The decision of whether or not to annuitize additional liquid assets is a difficult ...

Prior studies of life annuities that use classical dynamic programming methods to solve for annuity decisions find large gains from annuitization. The fact that few people actually buy annuities leads to an “annuity puzzle.” An alternative method of analysis, which uses concepts from approximate dynamic programming and samples of life histories from a pension simulation model, is shown to produ...

Mortality improvements, especially of the elderly, have been a common phenomenon since the end of World War II. The longevity risk becomes a major concern in many countries because of underestimating the scale and speed of prolonged life. In this study, we explore the increasing life expectancy by examining the basic properties of survival curves. Specifically, we check if there are signs of mo...

The present paper considers a retiree of a certain age with an initial endowment of investable wealth facing the following alternative investment opportunities. One possibility is to buy a single premium immediate annuity-contract. This insurance contract pays a life-long constant pension payment of a certain amount, depending e.g. on the age of the retiree, the operating cost of the insurance ...