Life Care Annuities - Trick or Treat for Insurance Companies?

Zhou-Richter, Tian; Gründl, Helmut

doi:10.2139/ssrn.1856994

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Life Care Annuities - Trick or Treat for Insurance Companies?

41 Pages Posted: 3 Jun 2011 Last revised: 9 Jun 2011

See all articles by Tian Zhou-Richter

Helmut Gründl

Goethe University Frankfurt - Department of Finance; International Center for Insurance Regulation

Date Written: June 2, 2011

Abstract

A life care annuity is a bundled insurance product comprised of a life annuity and long-term care insurance. Some recent studies find the two risks - longevity risk and long-term care risk - to be opposing and thus life care annuities advantageous in regard to pooling the two risks. Based on empirical data, this study discovers - in contrast to previous work - a positive correlation between the two risks and the presence of adverse selection in the life care annuity market. We also address the pricing risk and solvency risk insurance companies face when providing life care annuities.

Keywords: long-term care insurance, annuities, adverse selection, risk management

JEL Classification: D10, G22, I11, J14

Suggested Citation: Suggested Citation

Zhou-Richter, Tian and Gründl, Helmut, Life Care Annuities - Trick or Treat for Insurance Companies? (June 2, 2011). Available at SSRN: https://ssrn.com/abstract=1856994 or http://dx.doi.org/10.2139/ssrn.1856994