Intergenerational Effects of Guaranteed Pension Contracts

Trond Døskeland () and Helge Nordahl ()

The Geneva Risk and Insurance Review, 2008, vol. 33, issue 1, 19-46

Abstract: In this paper we show that there exist intergenerational cross-subsidization effects in guaranteed interest rate life and pension contracts as the different generations partially share the same reserves. Early generations build up bonus reserves, which are left with the company at expiry of the contract. These bonus reserves function partly as a subsidy of later generations, such that the latter earn a risk-adjusted return above the risk-free rate. Furthermore, we show that this subsidy may be large enough to explain why late generations buy guaranteed interest rate products, which otherwise would not have been part of the optimal portfolio allocation. The Geneva Risk and Insurance Review (2008) 33, 19–46. doi:10.1057/grir.2008.3

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v33/n1/pdf/grir20083a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v33/n1/full/grir20083a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Intergenerational Effects of Guaranteed Pension Contracts (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:33:y:2008:i:1:p:19-46

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().