IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v10y2022i3p65-d770274.html
   My bibliography  Save this article

Special-Rate Life Annuities: Analysis of Portfolio Risk Profiles

Author

Listed:
  • Ermanno Pitacco

    (Insurance and Risk Management, MIB Trieste School of Management, Largo Caduti di Nasiriya 1, 34142 Trieste, Italy)

  • Daniela Y. Tabakova

    (Insurance and Risk Management, MIB Trieste School of Management, Largo Caduti di Nasiriya 1, 34142 Trieste, Italy)

Abstract

Special-rate life annuities are life annuity products whose single premium is based on a mortality assumption driven (at least to some extent) by the health status of the applicant. The health status is ascertained via an appropriate underwriting step (which explains the alternative expression “underwritten life annuities”). Better annuity rates are then applied in presence of poor health conditions. The worse the health conditions, the smaller the modal age at death (as well as the expected lifetime), but the higher the variance of the lifetime distribution. The latter aspect is due to significant data scarcity as well as to the mix of possible pathologies leading to each specific rating class. A higher degree of (partially unobservable) heterogeneity inside each sub-portfolio of special-rate annuities follows, and this results in a higher variability of the total portfolio payout. The present research aims at analyzing the impact of extending the life annuity portfolio by selling special-rate life annuities. Numerical evaluations have been performed by adopting a deterministic approach as well as a stochastic one, according to diverse assumptions concerning both lifetime distributions and portfolio structure and size. Our achievements witness the possibility of extending the annuity business without taking huge amounts of risk. Hence, the risk management objective “enhancing the company market share” can be pursued without significant worsening of the annuity portfolio risk profile.

Suggested Citation

  • Ermanno Pitacco & Daniela Y. Tabakova, 2022. "Special-Rate Life Annuities: Analysis of Portfolio Risk Profiles," Risks, MDPI, vol. 10(3), pages 1-22, March.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:3:p:65-:d:770274
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-9091/10/3/65/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-9091/10/3/65/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nadine Gatzert & Gudrun Schmitt-Hoermann & Hato Schmeiser, 2012. "Optimal Risk Classification with an Application to Substandard Annuities," North American Actuarial Journal, Taylor & Francis Journals, vol. 16(4), pages 462-486.
    2. Annamaria Olivieri & Ermanno Pitacco, 2016. "Frailty and Risk Classification for Life Annuity Portfolios," Risks, MDPI, vol. 4(4), pages 1-23, October.
    3. Hoermann, Gudrun & Ruß, Jochen, 2008. "Enhanced annuities and the impact of individual underwriting on an insurer's profit situation," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 150-157, August.
    4. Nadine Gatzert & Udo Klotzki, 2016. "Enhanced Annuities: Drivers of and Barriers to Supply and Demand," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 41(1), pages 53-77, January.
    5. James Vaupel & Kenneth Manton & Eric Stallard, 1979. "The impact of heterogeneity in individual frailty on the dynamics of mortality," Demography, Springer;Population Association of America (PAA), vol. 16(3), pages 439-454, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benjamin Avanzi & Lewis de Felice, 2023. "Optimal Strategies for the Decumulation of Retirement Savings under Differing Appetites for Liquidity and Investment Risks," Papers 2312.14355, arXiv.org, revised Mar 2024.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, An & Fuino, Michel & Sehner, Thorsten & Wagner, Joël, 2022. "Valuation of long-term care options embedded in life annuities," Annals of Actuarial Science, Cambridge University Press, vol. 16(1), pages 68-94, March.
    2. Nadine Gatzert & Gudrun Hoermann & Hato Schmeiser, 2009. "The Impact of the Secondary Market on Life Insurers’ Surrender Profits," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(4), pages 887-908, December.
    3. Nan Zhu & Daniel Bauer, 2013. "Coherent Pricing of Life Settlements Under Asymmetric Information," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 827-851, September.
    4. Bagdonavicius, Vilijandas & Nikulin, Mikhail, 2000. "On goodness-of-fit for the linear transformation and frailty models," Statistics & Probability Letters, Elsevier, vol. 47(2), pages 177-188, April.
    5. Yahia Salhi & Pierre-Emmanuel Thérond, 2016. "Age-Specific Adjustment of Graduated Mortality," Working Papers hal-01391285, HAL.
    6. Feehan, Dennis & Wrigley-Field, Elizabeth, 2020. "How do populations aggregate?," SocArXiv 2fkw3, Center for Open Science.
    7. Luca Anzilli & Silvio Giove, 2020. "Multi-criteria and medical diagnosis for application to health insurance systems: a general approach through non-additive measures," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(2), pages 559-582, December.
    8. M. K. Lintu & Asha Kamath, 2022. "Performance of recurrent event models on defect proneness data," Annals of Operations Research, Springer, vol. 315(2), pages 2209-2218, August.
    9. Il Do Ha & Maengseok Noh & Youngjo Lee, 2010. "Bias Reduction of Likelihood Estimators in Semiparametric Frailty Models," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 37(2), pages 307-320, June.
    10. Andreas Wienke & Anne M. Herskind & Kaare Christensen & Axel Skytthe & Anatoli I. Yashin, 2002. "The influence of smoking and BMI on heritability in susceptibility to coronary heart disease," MPIDR Working Papers WP-2002-003, Max Planck Institute for Demographic Research, Rostock, Germany.
    11. Filipe Costa Souza & Wilton Bernardino & Silvio C. Patricio, 2024. "How life-table right-censoring affected the Brazilian social security factor: an application of the gamma-Gompertz-Makeham model," Journal of Population Research, Springer, vol. 41(3), pages 1-38, September.
    12. Svetlana V. Ukraintseva & Anatoli I. Yashin, 2005. "Economic progress as cancer risk factor. I: Puzzling facts of cancer epidemiology," MPIDR Working Papers WP-2005-021, Max Planck Institute for Demographic Research, Rostock, Germany.
    13. Silke van Daalen & Hal Caswell, 2015. "Lifetime reproduction and the second demographic transition: Stochasticity and individual variation," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 33(20), pages 561-588.
    14. K. Motarjem & M. Mohammadzadeh & A. Abyar, 2020. "Geostatistical survival model with Gaussian random effect," Statistical Papers, Springer, vol. 61(1), pages 85-107, February.
    15. Schultz, T. Paul, 2010. "Population and Health Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4785-4881, Elsevier.
    16. Xu, Linzhi & Zhang, Jiajia, 2010. "An EM-like algorithm for the semiparametric accelerated failure time gamma frailty model," Computational Statistics & Data Analysis, Elsevier, vol. 54(6), pages 1467-1474, June.
    17. Carlos Díaz-Venegas, 2014. "Identifying the Confounders of Marginalization and Mortality in Mexico, 2003–2007," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 118(2), pages 851-875, September.
    18. Väinö Kannisto, 2000. "Measuring the compression of mortality," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 3(6).
    19. Jaap H. Abbring & Tim Salimans, 2019. "The Likelihood of Mixed Hitting Times," Papers 1905.03463, arXiv.org, revised Apr 2021.
    20. Annamaria Olivieri & Ermanno Pitacco, 2016. "Frailty and Risk Classification for Life Annuity Portfolios," Risks, MDPI, vol. 4(4), pages 1-23, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:10:y:2022:i:3:p:65-:d:770274. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.