Impact of Flexible Periodic Premiums on Variable Annuity Guarantees
35 Pages Posted: 29 Feb 2016
Date Written: February 27, 2016
In this paper, we study the fair fee of a ﬂexible premium variable annuity (FPVA), in which the policyholder can choose to pay periodic premiums during the accumulation phase instead of a single initial premium. We are able to express fair fees using a fast and accurate approximation based on bounds on the price of the FPVA. We identify scenarios that are particularly costly for the insurer. Our study could help insurers estimate the magnitude of typical underpricing when offering ﬂexible premium variable annuities with the same fee as the corresponding single premium variable annuity.
Keywords: variable annuity, ﬂexible premium, GMAB, GMDB, Asian options, conditioning
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