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Examining the impact of mortality improvements on the attractiveness of annuity products: A focus on the mortality drag

Author

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  • Lee, Dong-hwa
  • Ahn, Keunbae

Abstract

Improvements in life expectancy have led to an increase in longevity risk, yet the phenomenon of the annuity puzzle persists. This study examines the attractiveness of annuity products by considering the impact of mortality improvements from the perspective of mortality drag. Our analysis shows that improvements in mortality rates reduce mortality drag, which in turn reduces the mortality-adjusted return on annuities. This reduction in mortality drag is observed across countries. Mortality drag is generally higher in Western countries, excluding Australia and the United Kingdom, than in Asian countries. In terms of gender, women have a relatively lower mortality drag and a slower declining mortality drag than men. The overall analysis suggests that increasing life expectancy is exacerbating the annuity puzzle by reducing the attractiveness of annuity products.

Suggested Citation

  • Lee, Dong-hwa & Ahn, Keunbae, 2024. "Examining the impact of mortality improvements on the attractiveness of annuity products: A focus on the mortality drag," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003768
    DOI: 10.1016/j.econlet.2024.111892
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    More about this item

    Keywords

    Mortality; Insurance; Annuities; Annuity puzzle; Mortality drag;
    All these keywords.

    JEL classification:

    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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