Evaluating the Technical Provisions for Traditional Brazilian Annuity Plans: Continuous-Time Stochastic Approach Based on Solvency Principles

César Neves and Eduardo Fraga L. de Melo

North American Actuarial Journal, 2016, vol. 20, issue 4, 420-436

Abstract: This article presents an approach for evaluating the liabilities of traditional Brazilian annuity plans, using a continuous-time stochastic approach based on modern solvency principles. The technical provisions are obtained by means of conditional expectation, under a real-world measure and considering the peculiar characteristics of each plan and the financial guarantees and profit participations (bonus and dividend plans) embedded in the annuity plans. We assume that policyholder behavior is not optimal, but we also illustrate a calculation of provision assuming optimal policyholder behavior to show the differences between both assumptions. In this article all explicit provisions formulas are derived, and several relevant conclusions about the values of these provisions are discussed.

Date: 2016
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DOI: 10.1080/10920277.2016.1192476

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