Lifecycle Portfolio Choice with Systematic Longevity Risk and Variable Investment — Linked Deferred Annuities

28 Pages Posted: 30 Aug 2013

See all articles by Raimond Maurer

Raimond Maurer

Goethe University Frankfurt - Finance Department

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Ralph Rogalla

St. John's University - Tobin College of Business - School of Risk Management, Insurance, and Actuarial Science; Goethe University Frankfurt - Department of Finance

Vasily Kartashov

Goethe University Frankfurt

Date Written: September 2013

Abstract

This article assesses the impact of variable investment‐linked deferred annuities (VILDAs) on lifecycle consumption and portfolio allocation, allowing for systematic longevity risk. Under a self‐insurance strategy, insurers set premiums to reduce the chance that benefits paid exceed provider reserves. Under a participating approach, the provider avoids taking systematic longevity risk by adjusting benefits in response to unanticipated mortality shocks. Young households with participating annuities average one‐third higher excess consumption, while 80‐year‐olds increase consumption about 75 percent. Many households would prefer to participate in systematic longevity risk unless insurers can hedge it at a very low price.

Suggested Citation

Maurer, Raimond and Mitchell, Olivia S. and Rogalla, Ralph and Kartashov, Vasily, Lifecycle Portfolio Choice with Systematic Longevity Risk and Variable Investment — Linked Deferred Annuities (September 2013). Journal of Risk and Insurance, Vol. 80, Issue 3, pp. 649-676, 2013. Available at SSRN: https://ssrn.com/abstract=2318241 or http://dx.doi.org/10.1111/j.1539-6975.2012.01502.x

Raimond Maurer (Contact Author)

Goethe University Frankfurt - Finance Department ( email )

Grüneburgplatz 1
House of Finance
Frankfurt, 60323
Germany

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ralph Rogalla

St. John's University - Tobin College of Business - School of Risk Management, Insurance, and Actuarial Science ( email )

101 Astor Place
New York, NY 10003
United States

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Vasily Kartashov

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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