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PARTICIPATING PAYOUT LIFE ANNUITIES: LESSONS FROM GERMANY

Published online by Cambridge University Press:  18 June 2013

Raimond Maurer ,
Ralph Rogalla  and
Ivonne Siegelin
Raimond Maurer*
Affiliation:
Finance Department, Goethe University, Grueneburgplatz 1 (Uni-PF. H 23), Frankfurt am Main, Germany
Ralph Rogalla
Affiliation:
Finance Department, Goethe University, Grueneburgplatz 1 (Uni-PF. H 23), Frankfurt am Main, Germany E-Mail: rogalla@finance.uni-frankfurt.de
Ivonne Siegelin
Affiliation:
Finance Department, Goethe University, Grueneburgplatz 1 (Uni-PF. H 23), Frankfurt am Main, Germany E-Mail: Ivonne.Siegelin@hof.uni-frankfurt.de
*
E-Mail: maurer@finance.uni-frankfurt.de
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Abstract

This paper analyzes the framework of German participating payout life annuities (PLAs), which offer guaranteed minimum benefits as well as participation in insurers' surpluses. We show that the process of sharing surpluses between shareholders and policyholders follows transparent and consistent rules. Subsequently, we develop an asset-liability model for a stylized German life insurer that offers PLAs to evaluate benefit variability and insurer stability given stochastic mortality and capital market developments. Our results suggest that guaranteed benefits can be provided with high credibility via PLAs, while, at the same time, annuitants receive attractive money's worth ratios. Moreover, we show that it might be difficult to offer a fixed benefit annuity providing the same lifetime utility as a PLA for the same premium and a comparably low insolvency risk. Overall, PLA schemes may be an efficient way to deal with risk factors that are highly unpredictable and difficult to hedge over the long run, such as systematic longevity and investment risks.

Keywords

Surplus determinationsurplus distributionasset-liability managementinvestment risksystematic longevity risk
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 43 , Issue 2 , May 2013 , pp. 159 - 187
Copyright
Copyright © ASTIN Bulletin 2013 

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