Life Insurance Annuity Research Articles

On age difference in joint lifetime modelling with life insurance annuity applications

AbstractInsurance and annuity products covering several lives require the modelling of the joint distribution of future lifetimes. In the interest of simplifying calculations, it is common in practice to assume that the future lifetimes among a group of people are independent. However, extensive research over the past decades suggests otherwise. In this paper, a copula approach is used to model the dependence between lifetimes within a married couple using data from a large Canadian insurance company. As a novelty, the age difference and the gender of the elder partner are introduced as an argument of the dependence parameter. Maximum likelihood techniques are thus implemented for the parameter estimation. Not only do the results make clear that the correlation decreases with age difference, but also the dependence between the lifetimes is higher when husband is older than wife. A goodness-of-fit procedure is applied in order to assess the validity of the model. Finally, considering several annuity products available on the life insurance market, the paper concludes with practical illustrations.

Effect of lifetime uncertainty on consumption/investment with luxury bequest motives

We study optimal consumption/investment of a retiree who has luxury bequest motives and faces the nonnegative bequest constraint. His lifetime is uncertain but actuarially fair life insurance-annuity policies are available. We obtain a closed form solution by using a dynamic programming method, and investigate the effects of lifetime uncertainty and the presence of life insurance-annuity on the consumption/investment policies.

Welfare Effects of a Reverse Life Insurance Annuity in an Overlapping Generations Model

Welfare Effects of a Reverse Life Insurance Annuity in an Overlapping Generations Model

An Optimal Product Mix for Hedging Longevity Risk in Life Insurance Companies: The Immunization Theory Approach

This article investigates the natural hedging strategy to deal with longevity risks for life insurance companies. We propose an immunization model that incorporates a stochastic mortality dynamic to calculate the optimal life insurance–annuity product mix ratio to hedge against longevity risks. We model the dynamic of the changes in future mortality using the well-known Lee–Carter model and discuss the model risk issue by comparing the results between the Lee–Carter and Cairns–Blake–Dowd models. On the basis of the mortality experience and insurance products in the United States, we demonstrate that the proposed model can lead to an optimal product mix and effectively reduce longevity risks for life insurance companies.

Asset Allocation to Optimise Life Insurance Annuity Firm Economic Capital and Risk Adjusted Performance

ABSTRACTThe impact that asset allocation has on the economic capital and the risk adjusted performance of financial services firms is considered in this article. A stochastic modelling approach is used in conjunction with a life insurance annuity firm illustrative example. It is shown that traditional solvency driven deterministic approaches to financial services firm asset allocation can yield sub optimal results in terms of minimising economic capital or maximising risk adjusted performance. Our results challenge the conventional wisdom that the assets backing life insurance annuities and financial services firm capital should be invested in low risk, bond type, assets. Implications for firms, customers, capital providers and regulators are discussed.

THE DEVELOPMENT AND SCOPE OF LIFE INSURANCE ANNUITIES IN THE UNITED STATES*

THE ROOT OF THE RECENT development of the annuity business in the United States is the growing recognition of the risk of old-age dependency. Not only has the awareness of this need been growing, but other factors, such as a loosening of family ties and changing attitudes toward family responsibilities, increased complexities of modern industrial life, and the lengthening of the average lifetime of the individual, have combined to magnify the need. In recent years, the writing of hundreds of thousands of annuity contracts and the collection of billions of dollars of annuity premiums have brought about a major change in the life insurance business. This study assembles the facts in this development and analyzes its causes. It should be of particular interest to all who seek for themselves something more than minimum financial security. Although the annuity principle has been applied in various forms and by various organizations, the life insurance companies are the principal private business institutions offering annuity contracts. Accordingly, this study deals only with annuities written by the legal reserve life insurance companies of the United States. Government plans such as the old-age pensions provided under the Social Security Act and the annuity settlements of United States Government and National Service Life Insurance are outside its scope. The assembly and analysis of data are restricted to the American scene and concentrate on the experience of the past thirty years. The study is laid out as follows: The first chapter reviews briefly the history of life insurance up to the early years of the twentieth century, emphasizing the role of the annuity in the evolution of actuarial science and describing some of the economic and social changes in the United States which preceded the recent revival of interest in annuity contracts. This is followed by a broad classification of annuities which separates all life insurance annuities into two categories-regular and optional-and classifies them according to the more important variations in contract provisions.

The Development and Scope of Life Insurance Annuities in the United States

The Development and Scope of Life Insurance Annuities in the United States