Individual Annuity Demand Under Aggregate Mortality Risk

27 Pages Posted: 10 May 2010

See all articles by Roman N. Schulze

Roman N. Schulze

affiliation not provided to SSRN

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

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Abstract

Aggregate mortality risk - the risk that the mortality trend in a population changes in a nondeterministic way - and its implications for corporate decisions has recently been the subject of lively scientific discussion. We show that aggregate mortality risk is also a key determinant for individual annuitization decisions. Aggregate mortality risk appears to be a risk very difficult to transfer for individuals. Whether its existence leads to a higher or lower annuity demand depends on objective factors (e.g., insurers’ vulnerability to aggregate mortality changes). Subjective factors (i.e., individuals’ preferences) determine only the intensity of the annuity demand reaction to aggregate mortality risk. Our results are of significant importance not only for financial planning approaches of individual annuity buyers but also for strategic decisions in insurance companies and for solvency regulators. Furthermore, consideration of aggregate mortality risk may alleviate, but also intensify, the annuity puzzle.

Suggested Citation

Schulze, Roman N. and Post, Thomas, Individual Annuity Demand Under Aggregate Mortality Risk. Journal of Risk and Insurance, Vol. 77, Issue 2, pp. 423-449, June 2010. Available at SSRN: https://ssrn.com/abstract=1601001 or http://dx.doi.org/10.1111/j.1539-6975.2009.01340.x

Roman N. Schulze (Contact Author)

affiliation not provided to SSRN

No Address Available

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

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