A Managed Volatility Investment Strategy for Pooled Annuity Products

Shuanglan Li, Héloïse Labit Hardy, Michael Sherris and Andrés M. Villegas
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Shuanglan Li: School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia
Héloïse Labit Hardy: School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia
Michael Sherris: School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia
Andrés M. Villegas: School of Risk and Actuarial Studies, Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR), UNSW Sydney, Sydney, NSW 2052, Australia

Risks, 2022, vol. 10, issue 6, 1-30

Abstract: Pooled annuity products, where the participants share systematic and idiosyncratic mortality risks as well as investment returns and risk, provide an attractive and effective alternative to traditional guaranteed life annuity products. While longevity risk sharing in pooled annuities has received recent attention, incorporating investment risk beyond fixed interest returns is relatively unexplored. Incorporating equity investments has the potential to increase expected annuity payments at the expense of higher variability. We propose and assess a strategy for incorporating equity investments along with managed-volatility for pooled annuity funds. We show how the managed volatility strategy improves investment performance, while reducing pooled annuity income volatility and downside risk, as well as an investment strategy that reduces exposure to investment risk over time. We quantify the impact of pool size when equity investments are included, showing how these products are viable with relatively small pool sizes.

Keywords: pooled annuity; equity investment; managed volatility; longevity risk (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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