On the Optimal Combination of Annuities and Tontines

Chen, An; Rach, Manuel; Sehner, Thorsten

doi:10.2139/ssrn.3430546

Cited by 3 publications

(5 citation statements)

References 29 publications

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“…Last, it might be worthwhile to explore more complex mutual insurance schemes. Instead of purely investing in a mutual insurance scheme, it might make sense to combine traditional retirement products and mutual insurance (see, e.g., Chen et al, 2020;Weinert and Gründl, 2021). For such schemes, the analysis of the interplay between heterogeneity and income stability is an interesting path for future research (see also, for example, Bernhardt and Qu, 2022;Denuit et al, 2022).…”

Section: C2 a Priori Fixation Of α J (T (A) )mentioning

confidence: 99%

Modern Life-Care Tontines

Hieber

Lucas²

2022

ASTIN Bull.

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The tendency of insurance providers to refrain from offering long-term guarantees on investment or mortality risk has shifted attention to mutual risk pooling schemes like (modern) tontines, pooled annuities or group self annuitization schemes. While the literature has focused on mortality risk pooling schemes, this paper builds on the advantage of pooling mortality and morbidity risks, and their inherent natural hedge. We introduce a modern “life-care tontine”, which in addition to retirement income targets the needs of long-term care (LTC) coverage for an ageing population. In contrast to a classical life-care annuity, both mortality and LTC risks are shared within the policyholder pool by mortality and morbidity credits, respectively. Technically, we rely on a backward iteration to deduce the smoothed cashflows pattern and the separation of cash-flows in a fixed withdrawal and a surplus from the two types of risks. We illustrate our results using real life data, demonstrating the adequacy of the proposed tontine scheme.

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Section: C2 a Priori Fixation Of α J (T (A) )mentioning

confidence: 99%

Modern Life-Care Tontines

Hieber

Lucas²

2022

ASTIN Bull.

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“…Therefore, the tontine is converted into a stable deferred annuity at an optimal switching time. Chen et al [12] compare the "tonuity" with a bundled product called "antine" that starts with annuity payments and switches to tontine payments in later years, and with a product bundle consisting of a traditional annuity and a tontine. In an expected-lifetime-utility framework they find that the product bundle is superior to the bundled products "tonuity" and "antine".…”

Section: Literature Reviewmentioning

confidence: 99%

“…See McKeever[40] for an overview of the history of tontines 12. According to Sabin[49] a fair tontine is a tontine in which the distribution to surviving participants is made in unequal portions according to a plan that provides each participant with a fair bet 13.…”

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The modern tontine

Weinert

Gründl

2020

Eur. Actuar. J.

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We investigate whether a historical pension concept, the tontine, yields enough innovative potential to extend and improve the prevailing privately funded pension solutions in a modern way. The tontine basically generates an age-increasing cash flow, which can help to match the increasing financing needs at old ages. In contrast to traditional pension products, however, the tontine generates volatile cash flows, which means that the insurance character of the tontine cannot be guaranteed in every situation. By employing Multi Cumulative Prospect Theory (MCPT) we answer the question to what extent tontines can be a complement to or a substitute for traditional annuities. We find that it is only optimal to invest in tontines for a certain range of initial wealth. In addition, we investigate in how far the tontine size, the volatility of individual liquidity needs and expected mortality rates contribute to the demand for tontines.

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“…Several opportunities for innovation can be obtained when combining different benefits, such as the just mentioned case of annuities and death benefits. Particularly interesting in this regard is the combination of different forms of annuities; Chen et al ( , 2020 and Chen and Rach (2019) consider the case of fixed annuity benefits combined with mortality/longevity linked-benefits.…”

Section: Introductionmentioning

confidence: 99%

Quantitative Risk Assessment in Life, Health and Pension Insurance

2022

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On the Optimal Combination of Annuities and Tontines

Cited by 3 publications

References 29 publications

Modern Life-Care Tontines

Modern Life-Care Tontines

The modern tontine

Quantitative Risk Assessment in Life, Health and Pension Insurance

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