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Participating Payout Life Annuities: Lessons From Germany

Author

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  • Maurer, Raimond
  • Rogalla, Ralph
  • Siegelin, Ivonne

Abstract

This paper analyzes the framework of German participating payout life annuities (PLAs), which offer guaranteed minimum benefits as well as participation in insurers' surpluses. We show that the process of sharing surpluses between shareholders and policyholders follows transparent and consistent rules. Subsequently, we develop an asset-liability model for a stylized German life insurer that offers PLAs to evaluate benefit variability and insurer stability given stochastic mortality and capital market developments. Our results suggest that guaranteed benefits can be provided with high credibility via PLAs, while, at the same time, annuitants receive attractive money's worth ratios. Moreover, we show that it might be difficult to offer a fixed benefit annuity providing the same lifetime utility as a PLA for the same premium and a comparably low insolvency risk. Overall, PLA schemes may be an efficient way to deal with risk factors that are highly unpredictable and difficult to hedge over the long run, such as systematic longevity and investment risks.

Suggested Citation

  • Maurer, Raimond & Rogalla, Ralph & Siegelin, Ivonne, 2013. "Participating Payout Life Annuities: Lessons From Germany," ASTIN Bulletin, Cambridge University Press, vol. 43(2), pages 159-187, May.
    • Handle: RePEc:cup:astinb:v:43:y:2013:i:02:p:159-187_00
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    Citations

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    Cited by:

    1. Maurer, Raimond & Mitchell, Olivia S. & Rogalla, Ralph & Siegelin, Ivonne, 2016. "Accounting and actuarial smoothing of retirement payouts in participating life annuities," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 268-283.
    2. Berdin, Elia, 2016. "Interest rate risk, longevity risk and the solvency of life insurers," ICIR Working Paper Series 23/16, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    3. Bruszas, Sandy & Kaschützke, Barbara & Maurer, Raimond & Siegelin, Ivonne, 2018. "Unisex pricing of German participating life annuities—Boon or bane for customer and insurance company?," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 230-245.
    4. Bravo, Jorge Miguel & El Mekkaoui de Freitas, Najat, 2018. "Valuation of longevity-linked life annuities," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 212-229.
    5. Kaschützke, B. & Maurer, R., 2016. "Investing and Portfolio Allocation for Retirement," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 567-608, Elsevier.
    6. Elia Berdin & Helmut Gründl, 2015. "The Effects of a Low Interest Rate Environment on Life Insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(3), pages 385-415, July.
    7. Niedrig, Tobias, 2015. "Optimal asset allocation for interconnected life insurers in the low interest rate environment under solvency regulation," SAFE Working Paper Series 97, Leibniz Institute for Financial Research SAFE.
    8. Antje Mahayni & Matthias Muck, 2017. "The benefit of life insurance contracts with capped index participation when stock prices are subject to jump risk," Review of Derivatives Research, Springer, vol. 20(3), pages 281-308, October.
    9. Alexander Bohnert, 2015. "The Impact of Guarantees on the Performance of Pension Saving Schemes: Insights from the Literature," Risks, MDPI, vol. 3(4), pages 1-28, November.
    10. Bohnert, Alexander & Gatzert, Nadine & Jørgensen, Peter Løchte, 2015. "On the management of life insurance company risk by strategic choice of product mix, investment strategy and surplus appropriation schemes," Insurance: Mathematics and Economics, Elsevier, vol. 60(C), pages 83-97.
    11. Ciardiello, Francesco & Di Lorenzo, Emilia & Menzietti, Massimiliano & Sibillo, Marilena, 2024. "Securitization for common health," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).
    12. van Bilsen, Servaas & Linders, Daniël, 2019. "Affordable and adequate annuities with stable payouts: Fantasy or reality?," Insurance: Mathematics and Economics, Elsevier, vol. 86(C), pages 19-42.

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