Assessing Investment and Longevity Risks within Immediate Annuities
|Type:||Articles in Refereed Journals (International)|
|Published by:||Asia-Pacific Journal of Risk and Insurance|
|:||Volume 3, Issue 1, p. 89-111|
The present paper aims at filling this gap: Using a simulation framework, it provides a longterm analysis of the risks within annuity books. More specifically, the mutual as well as the respective impacts of systematic mortality risk and investment risk on the insurer’s financial situation are studied.
The key finding is that under the model specifications and using annuity data from the United Kingdom, the risk premium charged for longevity risk seems to be very high relative to its characteristics. Possible explanations as well as economic implications are provided, and potential caveats are discussed.