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Accounting and actuarial smoothing of retirement payouts in participating life annuities

Author

Listed:
  • Maurer, Raimond
  • Mitchell, Olivia S.
  • Rogalla, Ralph
  • Siegelin, Ivonne

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. Yet these techniques have been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of a participating life annuity, 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.

Suggested Citation

  • Maurer, Raimond & Mitchell, Olivia S. & Rogalla, Ralph & Siegelin, Ivonne, 2016. "Accounting and actuarial smoothing of retirement payouts in participating life annuities," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 268-283.
  • Handle: RePEc:eee:insuma:v:71:y:2016:i:c:p:268-283
    DOI: 10.1016/j.insmatheco.2016.09.007
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:revdev:v:20:y:2017:i:3:d:10.1007_s11147-017-9131-9 is not listed on IDEAS

    More about this item

    Keywords

    Smoothing; Variable annuity; Life insurance; Retirement; Historical cost accounting; Fair market valuation;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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