A utility-based comparison of pension funds and life insurance companies under regulatory constraints
This paper compares two different types of annuity providers, i.e. defined benefit pension funds and life insurance companies. One of the key differences is that the residual risk in pension funds is collectively borne by the beneficiaries and the sponsor's shareholders while in the case of life insurers it is borne by the external shareholders. First, this paper employs a contingent claim approach to evaluate the risk return tradeoff for annuitants. For that, we take into account the differences in contract specifications and in regulatory regimes. Second, a welfare analysis is conducted to examine whether a consumer with power utility experiences utility gains if she chooses a defined benefit plan or a life annuity contract over a defined contribution plan. We demonstrate that regulation can be designed to support a level playing field amongst different financial institutions.
Year of publication: |
2011
|
---|---|
Authors: | Broeders, Dirk ; Chen, An ; Koos, Birgit |
Published in: |
Insurance: Mathematics and Economics. - Elsevier, ISSN 0167-6687. - Vol. 49.2011, 1, p. 1-10
|
Publisher: |
Elsevier |
Keywords: | Pension plans Annuities Barrier options Contingent claim approach Certainty equivalents |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Utility-equivalence of pension security mechanisms
Broeders, Dirk, (2014)
-
An institutional evaluation of pension funds and life insurance companies
Broeders, Dirk, (2009)
-
Utility-equivalence of pension security mechanisms
Broeders, Dirk, (2014)
- More ...