Managing Systematic Mortality Risk With Group Self‐Pooling and Annuitization Schemes

Qiao, Chao; Sherris, Michael

doi:10.1111/j.1539-6975.2012.01483.x

Cited by 91 publications

(28 citation statements)

References 28 publications

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“…In these arrangements, as we have briefly recalled in Section 3.2, also the financial risk is retained by the participants, and then the benefit adjustment can be obtained from (11) (or equivalently from (7)), with no guarantee embedded; see, e.g. Piggot et al, (2005) or Qiao & Sherris (2012).…”

Section: Mixed Solutions and Additional Conditionsmentioning

confidence: 99%

“…Examples of non-insurance arrangements in which the longevity risk is shared among the individuals are provided by group self-annuitisation pools (see, e.g. Piggot et al 2005;Valdez et al 2006;Qiao & Sherris 2012), pooled annuity funds (see Stamos 2008;Donnelly et al 2013), and annuity overlay funds (see Donnelly et al 2014;Donnelly 2015). The common idea here is that liabilities must always be funded; this target is reached by letting the benefit amount decrease, if required by the available asset amount.…”

Section: Introductionmentioning

confidence: 99%

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Linking annuity benefits to the longevity experience: alternative solutions

Olivieri

Pitacco

2020

Ann. actuar. sci.

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The uncertainty regarding financial returns and the life expectancy, joint to the reduced social security benefits, increasingly expose individuals to the risk of outliving their post-retirement assets. However, the demand for longevity guarantees remains low, due to high costs. The providers, on their side, may be reluctant to offer non-adjustable longevity guarantees, as the risk is long term and difficult to predict. It is therefore convenient to reconsider the design of longevity guarantees. In particular, a participating structure, providing a link to some longevity experience, could allow a sharing of losses, and possibly profits, resulting in a reduction of the cost of the retained guarantee. The literature review suggests a number of alternatives to define a longevity-linking arrangement, but the topic is not yet completely explored. It is useful, in particular, to have a common framework, under which the various solutions can be interpreted and compared, also with a view to the trade-off between the retained risk and the cost of the guarantee. Developing a general structure describing longevity-linked post-retirement benefits is the main purpose of this paper. Allowing for aggregate longevity risk, we then examine suitable solutions for insurance products.

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Section: Mixed Solutions and Additional Conditionsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Linking annuity benefits to the longevity experience: alternative solutions

Olivieri

Pitacco

2020

Ann. actuar. sci.

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“…They state that an average (British) employee needs to invest around 260 thousand pounds sterling, which approximately corresponds to 300 thousand euros, in the private pension provision to keep her standard of living in the retirement phase beginning at the age of 65 years. • In their simulation study of group self-annuitization schemes, Qiao and Sherris (2013) frequently apply a pool size of 1000 which we adopt for our analyses. • For the risk-free rate, we choose a fairly low value to conform with the current situation in many European countries.…”

Section: Tonuitymentioning

confidence: 99%

On the Optimal Combination of Annuities and Tontines

Chen¹,

Rach²,

Sehner³

2020

ASTIN Bull.

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Tontines, retirement products constructed in such a way that the longevity risk is shared in a pool of policyholders, have recently gained vast attention from researchers and practitioners. Typically, these products are cheaper than annuities, but do not provide stable payments to policyholders. This raises the question whether, from the policyholders' viewpoint, the advantages of annuities and tontines can be combined to form a retirement plan which is cheaper than an annuity, but provides a less volatile retirement income than a tontine. In this article, we analyze and compare three approaches of combining annuities and tontines in an expected utility framework: the previously introduced “tonuity”, a product very similar to the tonuity which we call “antine” and a portfolio consisting of an annuity and a tontine. We show that the payoffs of a tonuity and an antine can be replicated by a portfolio consisting of an annuity and a tontine. Consequently, policyholders achieve higher expected utility levels when choosing the portfolio over the novel retirement products tonuity and antine. Further, we derive conditions on the premium loadings of annuities and tontines indicating when the optimal portfolio is investing a positive amount in both annuity and tontine, and when the optimal portfolio turns out to be a pure annuity or a pure tontine.

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“…In the homogeneous setting, the optimal PAF was derived in Stamos (2008), and its utility (or loading in our terminology) compared to a (variable) life annuity was investigated in Donnelly et al (2013). See Qiao and Sherris (2013), Valdez et al (2006) and Cannon and Tonks (2008) for additional references that are relevant to the sharing of mortality and longevity risk. We are not aware of work on such optimal PAF's in the heterogeneous setting, though an approach like that of this paper (i.e.…”

Section: Pooled Annuity Fund (Paf)mentioning

confidence: 99%

Equitable Retirement Income Tontines: Mixing Cohorts Without Discriminating

Milevsky

Salisbury²

2016

ASTIN Bull.

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There is growing interest in the design of pension annuities that insure against idiosyncratic longevity risk while pooling and sharing systematic risk. This is partially motivated by the desire to reduce capital and reserve requirements while retaining the value of mortality credits; see for example, Piggott et al. (2005) or Donnelly et al. (2014). In this paper, we generalize the natural retirement income tontine introduced by Milevsky and Salisbury (2015) by combining heterogeneous cohorts into one pool. We engineer this scheme by allocating tontine shares at either a premium or a discount to par based on both the age of the investor and the amount they invest. For example, a 55-year old allocating $10, 000 to the tontine might be told to pay $200 per share and receive 50 shares, while a 75-year old allocating $8, 000 might pay $40 per share and receive 200 shares. They would all be mixed together into the same tontine pool and each tontine share would have equal income rights. The current paper addresses existence and uniqueness issues and discusses the conditions under which this scheme can be constructed equitably -which is distinct from fairly -even though it isn't optimal for any cohort. As such, this also gives us the opportunity to compare and contrast various pooling schemes that have been proposed in the literature and to differentiate between arrangements that are socially equitable, vs. actuarially fair vs. economically optimal.

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Managing Systematic Mortality Risk With Group Self‐Pooling and Annuitization Schemes

Cited by 91 publications

References 28 publications

Linking annuity benefits to the longevity experience: alternative solutions

Linking annuity benefits to the longevity experience: alternative solutions

On the Optimal Combination of Annuities and Tontines

Equitable Retirement Income Tontines: Mixing Cohorts Without Discriminating

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