This paper evaluates the extent of adverse selection in life insurance and annuities in international markets. We examine the extent of adverse selection in group and individual life insurance. In addition we also compare results with prior analyses of adverse selection in international annuity markets, focusing on the US, UK and Japan. Our results may be used to assess the extent to which life...

This brief explores how the shift from defined benefit to defined contribution pension plans might affect bequests and thereby consumption and saving. Bequests can occur under two different types of circumstances: (1) individuals plan to leave an inheritance for their heirs (an intended bequest); or (2) individuals have no specific inheritance plans, but die before consuming all of their assets...

Rational models of risk-averse consumers have difficulty explaining limited annuity demand. We posit that consumers evaluate annuity products using a narrow "investment frame" that focuses on risk and return, rather than a "consumption frame" that considers the consequences for lifelong consumption. Under an investment frame, annuities are quite unattractive, exhibiting high risk without high r...

Longevity risk has become a major challenge for governments, individuals, and annuity providers in most countries, and especially its aggregate form, i.e. the risk of unsystematic changes to general mortality patterns, bears a large potential for accumulative losses for insurers. As obvious risk management tools such as (re)insurance or hedging are less suited to manage an annuity provider’s ex...

At retirement, most individuals face a choice between voluntary annuitization and discretionary management of assets with systematic withdrawals for consumption purposes. Annuitization— buying a life annuity from an insurance company—assures a lifelong consumption stream that cannot be outlived, but it is at the expense of a complete loss of liquidity. On the other hand, discretionary managemen...

Improved longevity is a human triumph. But improved longevity, when it occurs among those who are no longer economically productive, has a cost. Persistent decrease in mortality rates has become a major concern of annuity and pension providers, especially mortality improvements for post-retirement ages which have significant financial impact as far as survival benefits are concerned. There are ...

The values of life insurance and annuity liabilities move in opposite directions in response to a change in the underlying mortality. Natural hedging utilizes this to stabilize aggregate liability cash flows. Our study shows empirical evidence that insurers who utilize natural hedging also charge lower premiums than otherwise similar insurers. This indicates that insurers who are able to utiliz...

We use a payment pattern of the type {1k,2k,3k,…} to generalize standard level and increasing annuity polynomial patterns. derive explicit formulas for present value an n-year annuity, m-monthly continuous annuity. also idea extend annuities patterns derived from analytic functions, as well {1r,2r,3r,…}, with r being arbitrary real number. In process, we develop possible approximations k! gamma...

The United States experienced an unprecedented financial crisis after 2007. This paper analyzes whether retirees had enough wealth built up to weather the financial risks that materialized in the crisis. Financial risks associated with saving for retirement had increasingly shifted onto individuals and away from the public and employers during the decades before the crisis. This growing persona...

Under a guaranteed annuity option, an insurer guarantees to convert a policyholder’s accumulated funds to a life annuity at a fixed rate when the policy matures. If the annuity rates provided under the guarantee are more beneficial to the policyholder than the prevailing rates in the market the insurer has to make up the difference. Such guarantees are common in many US tax sheltered insurance ...