Life Annuity Portfolios: Risk-Adjusted Valuations and Suggestions on the Product Attractiveness

Valeria D’Amato (), Emilia Di Lorenzo (), Albina Orlando and Marilena Sibillo ()
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Valeria D’Amato: University of Salerno, Department of Economics and Statistics
Emilia Di Lorenzo: University of Naples Federico II, Department of Economic and Statistical Sciences
Albina Orlando: National Research Council
Marilena Sibillo: University of Salerno, Department of Economics and Statistics

Chapter Chapter 26 in Demography and Health Issues, 2018, pp 315-323 from Springer

Abstract: Abstract Solvency assessing is a compelling issue for the insurance industry, also in light of the current international risk-based regulations. Internal models have to take into account risk/profit indicators, in order to provide flexible tools aimed at valuing solvency. We focus on a variable annuity with an embedded option involving a participation level which depends on the period financial result. We realize a performance evaluation by means of a suitable indicator, which properly captures both financial and demographic risk drivers. In fact, in the case of life annuity business, assessing solvency has to be framed within a wide time horizon, where specific financial and demographic risks are realized. In this order of ideas, solvency indicators have to capture the amount of capital to cope with the impact of those risk sources over the considered period. The analysis is carried out in accordance with a management perspective, apt to measure the business performance, which requires a correct risk control; in particular we present a study of the dynamics of the profit realized per unit of the total financial value of the contract. On the other hand, the consumer profitability is also measured by means of an utility-equivalent fixed life annuity. Ac-cording to the insureds point of view, we measure their perception of the contract profitability within the expected utility approach.

Keywords: Variable annuity; Solvency/profit indexes; Risk-adjusted management; Consumer protection (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-76002-5_26

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