Examining the impact of mortality improvements on the attractiveness of annuity products: A focus on the mortality drag

Dong-hwa Lee and Keunbae Ahn

Economics Letters, 2024, vol. 242, issue C

Abstract: Improvements in life expectancy have led to an increase in longevity risk, yet the phenomenon of the annuity puzzle persists. This study examines the attractiveness of annuity products by considering the impact of mortality improvements from the perspective of mortality drag. Our analysis shows that improvements in mortality rates reduce mortality drag, which in turn reduces the mortality-adjusted return on annuities. This reduction in mortality drag is observed across countries. Mortality drag is generally higher in Western countries, excluding Australia and the United Kingdom, than in Asian countries. In terms of gender, women have a relatively lower mortality drag and a slower declining mortality drag than men. The overall analysis suggests that increasing life expectancy is exacerbating the annuity puzzle by reducing the attractiveness of annuity products.

Keywords: Mortality; Insurance; Annuities; Annuity puzzle; Mortality drag (search for similar items in EconPapers)
JEL-codes: J10 M20 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003768

DOI: 10.1016/j.econlet.2024.111892

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