Explaining Low Annuity Demand: An Optimal Portfolio Application to Japan

24 Pages Posted: 8 May 2008

See all articles by Sachi Purcal

Sachi Purcal

Macquarie University - Department of Actuarial Studies; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 0000-00-00

Abstract

Using an optimizing financial planning model in the tradition of Merton and Richard we explore how individuals should determine their life insurance and annuity choices, given uncertainty about investment returns and mortality. Both consumption and bequests appear as arguments in the individual's preference function. The model explicitly recognizes the existence of social security in retirement, and of loadings on insurance premiums, due to administration costs in the life insurance and annuities markets. The model sheds light on the reasons for the thinness of voluntary life annuity markets worldwide. The relative importance of pre-existing annuitization through social security, the role of bequests, and premium loadings are quantitatively assessed within a single optimizing framework. Results are presented for a model specification calibrated to Japan.

Suggested Citation

Purcal, Sachi and Piggott, John, Explaining Low Annuity Demand: An Optimal Portfolio Application to Japan (0000-00-00). Journal of Risk & Insurance, Vol. 75, Issue 2, pp. 493-516, June 2008. Available at SSRN: https://ssrn.com/abstract=1130012 or http://dx.doi.org/10.1111/j.1539-6975.2008.00269.x

Sachi Purcal (Contact Author)

Macquarie University - Department of Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
2
Abstract Views
343
PlumX Metrics