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Accounting and Actuarial Smoothing of Retirement Payouts in Participating Life Annuities

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  • Raimond Maurer
  • Olivia S. Mitchell
  • Ralph Rogalla
  • Ivonne Siegelin

Abstract

Life insurers use accounting and actuarial techniques to smooth reporting of firm assets and liabilities, seeking to transfer surpluses in good years to cover benefit payouts in bad years. Nevertheless, these techniques been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of participating lifetime annuities, an insurance product that pays retirees guaranteed lifelong benefits along with variable non-guaranteed surplus. Our goal is to illustrate how accounting and actuarial techniques for this type of financial contract shape policyholder wellbeing, along with insurer profitability and stability. Smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could undermine the market for long-term retirement payout products.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20124.

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Date of creation: May 2014
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Handle: RePEc:nbr:nberwo:20124

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  1. Christian Laux & Christian Leuz, 2010. "Did Fair-Value Accounting Contribute to the Financial Crisis?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 24(1), pages 93-118, Winter.
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