A empirical study on annuity pricing with minimum guarantees

Abstract

Minimum guaranteed benefits are the features of variable annuities which protect the annuitants against unfavorable changes in the economic conditions. Pricing such minimum guarantees pose a challenge to the annuity issuers, as many factors need to be taken into account for pricing the product. This study focuses on the pricing of guaranteed minimum death and accounts benefits which are embedded in flexible premium variable annuity. The study wishes to evaluate the impact of various factors: mortality improvements, volatility models, initial contribution, subsequent contributions, interest rate, guaranteed rate and accumulation period on the annuity prices. Using simulation results, this research provides useful information about the impact of these factors on the annuity pricing to both annuity providers/buyers and academia.

Evaluation of variable annuity guarantees with the effect of jumps in the asset price process

“…This will lead to an adverse selection problem which puts the company in a high risk of losses. To avoid this, the M\&E fees should depend on the mortality rates of an individual person, refer Figures 11 and 12 and explained in detail in Juma, Lee, Goh, Chin, and Liew (2016) and Juma and Lee (2017). The higher the mortality rate of an individual, the higher the fees irrespective of the region although the mortality table of the region is used in the calculation of the fees.…”