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Actuarial Gains in Life Annuities Due to Declining Health: LTC

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • J. Iñaki De La Peña

    (University of the Basque Country (UPV/EHU), Faculty of Economics and Business
    Consolidated Research Group EJ/GV: IT 1523-22)

  • Asier Garayeta

    (University of the Basque Country (UPV/EHU), Faculty of Economics and Business
    Consolidated Research Group EJ/GV: IT 1523-22)

Abstract

Life annuities are actuarial products based on technical assumptions, such as mortality. The degeneration of the human body leads, in addition to generating long-term care, to a higher mortality of the dependent than that of the general and insured population. Therefore, the period for receiving this benefit would be shorter. The aim of this paper is to determine the economic impact of the change in the beneficiary’s status when receiving this life annuity. It should be stressed that, in the life annuity, the biometric risk is borne by the insurer and that a lower payment expectancy due to the pension beneficiary’s change to dependent status entails a benefit, as this gain is not distributed to the beneficiary. A surplus is created by paying out the same benefit. Thus, the use of an appropriate mortality assumption results in a reduction of the mathematical payout provision, which frees up capital and results in a lower solvency capital requirement.

Suggested Citation

  • J. Iñaki De La Peña & Asier Garayeta, 2024. "Actuarial Gains in Life Annuities Due to Declining Health: LTC," Springer Books, in: Marco Corazza & Frédéric Gannon & Florence Legros & Claudio Pizzi & Vincent Touzé (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 99-105, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-64273-9_17
    DOI: 10.1007/978-3-031-64273-9_17
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