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A Managed Volatility Investment Strategy for Pooled Annuity Products

Author

Listed:
  • Shuanglan Li

    (School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia)

  • Héloïse Labit Hardy

    (School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia)

  • Michael Sherris

    (School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia)

  • Andrés M. Villegas

    (School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia)

Abstract

Pooled annuity products, where the participants share systematic and idiosyncratic mortality risks as well as investment returns and risk, provide an attractive and effective alternative to traditional guaranteed life annuity products. While longevity risk sharing in pooled annuities has received recent attention, incorporating investment risk beyond fixed interest returns is relatively unexplored. Incorporating equity investments has the potential to increase expected annuity payments at the expense of higher variability. We propose and assess a strategy for incorporating equity investments along with managed-volatility for pooled annuity funds. We show how the managed volatility strategy improves investment performance, while reducing pooled annuity income volatility and downside risk, as well as an investment strategy that reduces exposure to investment risk over time. We quantify the impact of pool size when equity investments are included, showing how these products are viable with relatively small pool sizes.

Suggested Citation

  • Shuanglan Li & Héloïse Labit Hardy & Michael Sherris & Andrés M. Villegas, 2022. "A Managed Volatility Investment Strategy for Pooled Annuity Products," Risks, MDPI, vol. 10(6), pages 1-30, June.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:6:p:121-:d:836446
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    References listed on IDEAS

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