Abstract
In recent years, registered index-linked annuities (RILAs) have reinvigorated the equity-linked annuities market in the United States. Now insurers are beginning to add lifetime withdrawal guarantees (GLWBs) to these products. GLWBs have been well studied in the context of traditional variable annuities, where they are infamous for the risk exposure they create on insurers’ balance sheets. In this study, we present a simple pricing model for GLWBs embedded in RILA policies and offer an extensive numerical illustration that quantifies their pricing and risk exposure for various RILA contracts. We find that a GLWB rider—unlike for fixed index annuities—exposes RILA carriers to considerable long-term financial risks, comparable to a variable annuity account with a heavily reduced equity exposure (∼40%).
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