Variable Annuities: Risk Identification and Risk Assessment
48 Pages Posted: 5 Apr 2011
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Fair Value of Guaranteed Annuity Options
By Enrico Biffis and Pietro Millossovich
-
Regression-Based Algorithms for Life Insurance Contracts with Surrender Guarantees
By Anna Rita Bacinello, Enrico Biffis, ...
-
Pricing Life Insurance Contracts with Early Exercise Features
By Anna Rita Bacinello, Enrico Biffis, ...
-
By Jing Li and Alexander Szimayer
-
State-Dependent Fees for Variable Annuity Guarantees
By Carole Bernard, Mary R. Hardy, ...
-
A Note on Stochastic Survival Probabilities and Their Calibration
By Elisa Luciano and Elena Vigna
-
Optimal Surrender Policy for Variable Annuity Guarantees
By Carole Bernard, Anne Mackay, ...