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Longevity Risk-Sharing Annuities: Partial Indexation in Mortality Experience

Author

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  • Zhang Saisai

    (Statistics and Actuarial Science, University of Waterloo, 200 University Ave. W., Waterloo, Ontario N2L3G1, Canada)

  • Li Johnny Siu-Hang

    (Statistics and Actuarial Science, University of Waterloo, 200 University Ave. W., Waterloo, Ontario N2L3G1, Canada)

Abstract

In a conventional fixed annuity, idiosyncratic risk is diversified away while systematic longevity risk is borne entirely by the provider. The mortality-indexed annuity on the other hand, transfers systematic longevity risk completely back to the annuitants by fully adjusting benefits to mortality experience. In this paper, we propose the partial mortality-indexed annuity (PMIA), which aims to seek a balance between the two ends of the risk-sharing spectrum. Through a simulation study, we show that the PMIA achieves risk sharing and benefits both the provider and the annuitant.

Suggested Citation

  • Zhang Saisai & Li Johnny Siu-Hang, 2017. "Longevity Risk-Sharing Annuities: Partial Indexation in Mortality Experience," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 11(1), pages 1-30, January.
    • Handle: RePEc:bpj:apjrin:v:11:y:2017:i:1:p:30:n:5
    DOI: 10.1515/apjri-2016-0023
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    References listed on IDEAS

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    1. Andrew J. G. Cairns & David Blake & Kevin Dowd, 2006. "A Two‐Factor Model for Stochastic Mortality with Parameter Uncertainty: Theory and Calibration," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 687-718, December.
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