A Managed Volatility Investment Strategy for Pooled Annuity Products

28 Pages Posted: 27 Sep 2019

See all articles by Shuanglan Li

Shuanglan Li

UNSW Sydney

Héloïse Labit Hardy

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies; UNSW Australia Business School

Andres Villegas

University of New South Wales (UNSW)

Date Written: September 18, 2019

Abstract

Pooled annuity products, where the participants share systematic and idiosyncratic mortality risks as well as investment returns and risk, provide an attractive and effective alternative to traditional guaranteed life annuity products. While longevity risk sharing in pooled annuities has received recent attention, incorporating investment risk beyond fixed interest returns is relatively unexplored. Incorporating equity investments has the potential to increase expected annuity payments at the expense of higher variability. We propose and assess a strategy for incorporating equity investments along with managed-volatility for pooled annuity funds. We show how the managed volatility strategy improves investment performance, while reducing pooled annuity income volatility and downside risk, as well as an investment strategy that reduces exposure to investment risk over time. We quantify the impact of pool size when equity investments are included, showing how these products are viable with relatively small pool sizes.

Keywords: pooled annuity, equity investment, managed volatility, longevity risk

JEL Classification: G22, G11, J11

Suggested Citation

Li, Shuanglan and Labit Hardy, Héloïse and Sherris, Michael and Villegas, Andres, A Managed Volatility Investment Strategy for Pooled Annuity Products (September 18, 2019). UNSW Business School Research Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3455806 or http://dx.doi.org/10.2139/ssrn.3455806

Shuanglan Li

UNSW Sydney ( email )

High Street
Kensington
2052
Australia

Héloïse Labit Hardy (Contact Author)

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies ( email )

UNSW Australia Business School
Sydney, NSW 2052
Australia

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies ( email )

UNSW Business School
Risk and Actuarial Studies
Sydney, NSW 2052
Australia
+61 2 9385 2333 (Phone)
+61 2 9385 1883 (Fax)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/MichaelSherris.aspx

UNSW Australia Business School ( email )

Sydney, NSW 2052
Australia

Andres Villegas

University of New South Wales (UNSW)

Kensington
High St
Sydney, NSW 2052
Australia

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