A utility-based comparison of pension funds and life insurance companies under regulatory constraints
This paper compares two different types of annuity providers, i.e. defined benefit pension funds and life insurance companies. One of the key differences is that the residual risk in pension funds is collectively borne by the beneficiaries and the sponsor's shareholders while in the case of life insurers it is borne by the external shareholders. First, this paper employs a contingent claim approach to evaluate the risk return tradeoff for annuitants. For that, we take into account the differences in contract specifications and in regulatory regimes. Second, a welfare analysis is conducted to examine whether a consumer with power utility experiences utility gains if she chooses a defined benefit plan or a life annuity contract over a defined contribution plan. We demonstrate that regulation can be designed to support a level playing field amongst different financial institutions.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chen, An & Suchanecki, Michael, 2007.
"Default risk, bankruptcy procedures and the market value of life insurance liabilities,"
Insurance: Mathematics and Economics,
Elsevier, vol. 40(2), pages 231-255, March.
- An Chen & Michael Suchanecki, 2006. "Default Risk, Bankruptcy Procedures and the Market Value of Life Insurance Liabilities," Bonn Econ Discussion Papers bgse8_2006, University of Bonn, Germany.
- Gollier, Christian, 2007.
"Intergenerational Risk-Sharing and Risk-Taking of a Pension Fund,"
IDEI Working Papers
42, Institut d'Économie Industrielle (IDEI), Toulouse.
- Gollier, Christian, 2008. "Intergenerational risk-sharing and risk-taking of a pension fund," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1463-1485, June.
- Christian Gollier, 2007. "Intergenerational Risk-Sharing and Risk-Taking of a Pension Fund," CESifo Working Paper Series 1969, CESifo Group Munich.
- Jacob A Bikker & Peter J G Vlaar, 2007. "Conditional Indexation in Defined Benefit Pension Plans in the Netherlands*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 32(4), pages 494-515, October.
- Broeders, Dirk & Chen, An, 2010.
"Pension regulation and the market value of pension liabilities: A contingent claims analysis using Parisian options,"
Journal of Banking & Finance,
Elsevier, vol. 34(6), pages 1201-1214, June.
- Dirk Broeders & An Chen, 2008. "Pension regulation and the market value of pension liabilities - a contingent claims analysis using Parisian options," DNB Working Papers 183, Netherlands Central Bank, Research Department.
- Jeffrey R. Brown & Peter R. Orszag, 2006. "The Political Economy of Government-Issued Longevity Bonds," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 611-631.
- David Blake, 1999. "Portfolio Choice Models of Pension Funds and Life Assurance Companies: Similarities and Differences," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 24(3), pages 327-357, July.
- Zvi Bodie, 1989.
"Pensions as Retirement Income Insurance,"
NBER Working Papers
2917, National Bureau of Economic Research, Inc.
- Davis, E. Philip, 2002. "Prudent person rules or quantitative restrictions? The regulation of long-term institutional investors' portfolios," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(02), pages 157-191, July.
- Alexander Kling & Andreas Richter & Jochen Ruß, 2007. "The Impact of Surplus Distribution on the Risk Exposure of With Profit Life Insurance Policies Including Interest Rate Guarantees," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(3), pages 571-589.
- de Jong, Frank, 2008. "Pension fund investments and the valuation of liabilities under conditional indexation," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 1-13, February.
- Laura Ballotta & Steven Haberman & Nan Wang, 2006. "Guarantees in With-Profit and Unitized With-Profit Life Insurance Contracts: Fair Valuation Problem in Presence of the Default Option," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 97-121.
- Exley, C.J. & Mehta, S.J.B. & Smith, A.D., 1997. "The Financial Theory of Defined Benefit Pension Schemes," British Actuarial Journal, Cambridge University Press, vol. 3(04), pages 835-966, October.
- Kling, Alexander & Richter, Andreas & Ru[ss], Jochen, 2007. "The interaction of guarantees, surplus distribution, and asset allocation in with-profit life insurance policies," Insurance: Mathematics and Economics, Elsevier, vol. 40(1), pages 164-178, January.
When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:49:y:2011:i:1:p:1-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.