CDHA CAAR

“Variable Annuities: Underlying Risks and Sensitivities Variable Annuities: Underlying Risks and Sensitivities,” by Imad Chahboun and Nathaniel Hoover (Supervisory Research and Analysis Working Paper 19-1, April 2019, .pdf format, 39p.). Note: Links to the abstract and the full text of this paper available at:

www.bostonfed.org/publications/risk-and-policy-analysis/2019/variable-annuities-underlying-risks-and-sensitivities.aspx

“Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing,” by Jeffrey R. Brown, Arie Kapteyn, Erzo F. P. Luttmer, Olivia S. Mitchell, and Anya Samek (WP2019-5, February 2019, .pdf format, 34p.).

pensionresearchcouncil.wharton.upenn.edu/wp-content/uploads/2019/03/WP-2019-5-Brown-et-al.pdf

Links to an abstract are available. For full text availability check your organization’s library. “Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice Bracketing,” by Jeffrey R. Brown, Arie Kapteyn, Erzo F.P. Luttmer, Olivia S. Mitchell, and Anya Samek (w24101, December 2017, .pdf format, 32p.).

www.nber.org/papers/w24101

Note: PRC requires free registration before providing working papers.

“Cognitive Constraints on Valuing Annuities,” by Jeffrey R. Brown, Arie Kapteyn, Erzo F.P. Luttmer, and Olivia S. Mitchell (WP2014-21, October 2014, .pdf format, 31p.). Note: Links to the abstract and the full text of the paper available at:

www.pensionresearchcouncil.org/publications/document.php?file=1215

Note: PRC requires free registration before providing working papers.

“Optimal Portfolio Choice in Retirement with Participating Life Annuities,” by Ralph Rogalla (WP2014-20, September 2014, .pdf format, 31p.).

www.pensionresearchcouncil.org/publications/document.php?file=1209

Links to an abstract are available. For full text availability check your organization’s library. “Riding the Bubble? Chasing Returns into Illiquid Assets,” by Danny Yagan (w20360, August 2014, .pdf format, 25p.).

www.nber.org/papers/w20360

“Stimulating Annuity Markets,” by Ben J. Heijdra, Jochen O. Mierau, and Timo Trimborn (CESifo Working Paper No. 4827, June 2014, .pdf format, 31p.). Note: Links to the abstract and full-text can be found at:

www.cesifo-group.de/ifoHome/publications/working-papers/CESifoWP/CESifoWPdetails?wp_id=19112534

Note: PRC requires free registration before providing working paper.

“Accounting and Actuarial Smoothing of Retirement Payouts in Participating Life Annuities,” by Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla, and Ivonne Siegelin (WP2014-02, February 2014, .pdf format, 43p.).

Abstract:

Life insurers use accounting and actuarial techniques to smooth reporting of firm assets and liabilities, seeking to transfer surpluses in good years to cover benefit payouts in bad years. Yet these techniques been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of participating lifetime annuities, an insurance product that pays retirees guaranteed lifelong benefits along with variable nonguaranteed surplus. Our goal is to illustrate how accounting and actuarial techniques for this product shape policyholder wellbeing as well as insurer profitability and stability. We show that smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could undermine the market for long-term retirement payout products.

www.pensionresearchcouncil.org/publications/document.php?file=1168

“Longevity Insurance Annuities: Lessons from the United Kingdom,” David Blake and John A. Turner (PI13-05, July 2013, .pdf format, 12p.).

Abstract:

Recent U.S. Treasury Department proposals have focused attention on longevity insurance annuities. These are deferred annuities that began payment at advanced older ages, such as at age 82. While the United Kingdom has by far the world’s largest annuity market, and some insurance companies used to provide longevity insurance annuities, currently no companies provide these annuities. The main reason this change has occurred is that proposed European Union regulations will require insurance companies to increase their reserves for these annuities in recognition that there is no asset available to effectively hedge the risk of unexpectedly large improvements in life expectancy.

www.pensions-institute.org/workingpapers/wp1305.pdf

Note: PRC requires free registration before providing working papers.

“Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection,” by Vanya Horneff, Olivia S. Mitchell, Raimond Maurer, and Ralph Rogalla (WP 2013-04, June 2013, .pdf format, 39p.). Note: Links to the abstract and full-text can be found at:

www.pensionresearchcouncil.org/publications/document.php?file=1107

“Cohort mortality risk or adverse selection in the UK annuity market?” by Edmund Cannon and Ian Tonks (PI-1304, April 2013, .pdf format, 42p.).

Abstract:

The “money’s worth” measure has been used to assess whether annuities are fairly valued and also as evidence for adverse selection in the annuity market. However, a regulated life assurer with concerns about predicting long-run mortality may price annuities to reduce these risks which will affect the money’s worth. We provide a simple model of the effect of cohort mortality risk on the money’s worth. We demonstrate that cohort mortality risk is quantitatively important, and show that it is not possible to identify the effect of a cohort mortality risk model from that of an adverse selection model.

www.pensions-institute.org/workingpapers/wp1304.pdf

“Adjusted Money’s Worth Ratios In Life Annuities,” by Jaime Casassus and Eduardo Walker (PI-1303, February 2013, .pdf format, 53p.).

Abstract:

The Money’s Worth Ratio (MWR) measures an annuity’s actuarial fairness. It is calculated as the discounted present value of the annuity’s expected future payments divided by its cost. We argue that, this measure may overestimate the value-for-money obtained by annuitants, since it does not adjust for liquidity or risk factors. Measuring these factors is challenging, requiring detailed knowledge of the annuity provider’s assets, liabilities, and of the stochastic processes followed by them. Using a multi-factor continuous-time model and option pricing theory, we propose a simple solution for an Adjusted MWR (AMWR), which does consider illiquidity and default risk. We implement this solution for the competitive Chilean annuity market, which offers unadjusted MWRs above 1, finding that indeed these ratios are biased upward 7 percent on average. We also present estimates of default option values, asset insufficiency probabilities and implied credit spreads for each annuity provider.

www.pensions-institute.org/workingpapers/wp1303.pdf