Life annuities and pension products usually involve a number of guarantees, such as minimum accumulation rates, minimum annual payments or a minimum total payout. Packaging different types of guarantees is the feature of so-called variable annuities. Basically, these products are unit-linked...

We analyze the long-standing “annuity puzzle” through the lens of behavioral economics. We provide novel evidence that lessens the extent of the puzzle and shed some additional light on the real drivers of the decision to annuitize. Last, we discuss the policy implications of our findings

With the increasing complexity of investment options in life insurance, more and more life insurers have adopted stochastic modeling methods for the assessment and management of insurance and financial risks. The most prevalent approach in market practice, Monte Carlo simulation, has been...

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...

For variable annuity policies, management fees for the most standard guarantees are charged at a constant rate throughout the term of the policy. This creates a misalignment of risk and income - the fee income is low when the option value is high, and vice versa. In turn, this may create adverse...

This paper offers a financial economic perspective on the optimal time (and age) at which the owner of a Variable Annuity (VA) policy with a Guaranteed Living Withdrawal Benefit (GLWB) rider should initiate guaranteed lifetime income payments. We abstract from utility, bequest and consumption...

Recently, a new type of variable annuity has been marketed to investors which is based on structured product-like investments instead of the mutual fund-like investments found in traditional variable annuities. Embedding a structured product into a variable annuity introduces substantial...

In the canonical model of investments, the optimal fractions in the risky assets do not depend on the time horizon. This is against empirical evidence, and against the typical recommendations of portfolio managers. We demonstrate that if the intertemporal coefficient of relative risk aversion is...

The market for private life annuities is characterised by adverse selection, that is, contracts offer lower than fair payoffs to individuals with low life expectancy. Moreover, life expectancy and income have been found to be positively correlated. The paper shows that a linear tax on annuity...

This paper evaluates the extent of adverse selection in life insurance and annuities in international markets, for both group and individual products. We also compare results with prior analyses of adverse selection in international annuity markets, focusing on the US, the UK, and Japan. Our...