Variable Annuities: Risk Identification and Risk Assessment

48 Pages Posted: 5 Apr 2011

See all articles by Anna Rita Bacinello

Anna Rita Bacinello

University of Trieste - Dipartimento di Matematica Applicata

Annamaria Olivieri

University of Parma - Dipartimento di Scienze Economiche e Aziendali

Ermanno Pitacco

University of Trieste - Dipartimento di Scienze Economiche, Aziendali, Matematiche e Statistiche B. de Finetti

Pietro Millossovich

City University London - Sir John Cass Business School

Date Written: July 1, 2010

Abstract

Life annuities and pension products usually involve a number of ‘guarantees’, such as, e.g., minimum accumulation rates, minimum annual payments and minimum total payout. Packaging different types of guarantees is the feature of the so-called Variable Annuities. Basically, these products are unit-linked investment policies providing deferred annuity benefits. The guarantees, commonly referred to as GMxBs (namely, Guaranteed Minimum Benefits of type ‘x’), include minimum benefits both in case of death and survival. Following a Risk Management-oriented approach, this paper first aims at singling out all sources of risk affecting Variable Annuities (‘risk identification phase’). Critical aspects arise from the interaction between financial and demographic issues. In particular, the longevity risk may have a dramatic impact on the technical equilibrium of a portfolio. Then, we deal with risk quantification (‘risk assessment phase’), mostly via stochastic simulation of financial and demographic scenarios. Our main contribution is to present an integrated approach to risks in Variable Annuity products, so providing a unifying and innovative point of view.

Suggested Citation

Bacinello, Anna Rita and Olivieri, Annamaria and Pitacco, Ermanno and Millossovich, Pietro, Variable Annuities: Risk Identification and Risk Assessment (July 1, 2010). CAREFIN Research Paper No. 14/2010, Available at SSRN: https://ssrn.com/abstract=1799266

Anna Rita Bacinello (Contact Author)

University of Trieste - Dipartimento di Matematica Applicata ( email )

Piazzale Europa, 1
Trieste, 34127
Italy

Annamaria Olivieri

University of Parma - Dipartimento di Scienze Economiche e Aziendali ( email )

via Kennedy 6
Parma, 43125
Italy

Ermanno Pitacco

University of Trieste - Dipartimento di Scienze Economiche, Aziendali, Matematiche e Statistiche B. de Finetti

Piazzale Europa 1
Trieste, Trieste 34100
Italy

Pietro Millossovich

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://www.cass.city.ac.uk/experts/P.Millossovich

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