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Systematic longevity risk: to bear or to insure?

Published online by Cambridge University Press:  25 November 2019

Ling-Ni Boon ,
Marie Brière  and
Bas J. M. Werker
Ling-Ni Boon
Affiliation:
Aegon, Aegonplein 50, 2591 TV Den Haag, the Netherlands
Marie Brière*
Affiliation:
Amundi, 91 boulevard Pasteur, 75015Paris, France Université Paris Dauphine, PSL Research University, Place du Maréchal de Lattre de Tassigny, 75775Paris Cedex 16, France Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim, Av. F.D. Roosevelt, 50, CP 145/1, 1050Brussels, Belgium
Bas J. M. Werker
Affiliation:
Netspar and Tilburg University, P.O. Box 90153, 5000LETilburg, the Netherlands
*
*Corresponding author. Email: marie.briere@amundi.com
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Abstract

We compare two contracts for managing systematic longevity risk in retirement: a collective arrangement that distributes the risk among participants, and a market-provided annuity contract. We evaluate the contracts’ appeal with respect to the retiree's welfare, and the viability of the market solution through the financial reward to the annuity provider's equityholders. We find that individuals prefer to bear the risk under a collective arrangement than to insure it with a life insurers' annuity contract subject to insolvency risk (albeit small). Under realistic capital provision hypotheses, the annuity provider is incapable of adequately compensating its equityholders for bearing systematic longevity risk.

Keywords

Group Self-Annuitization (GSA)insurancelongevity riskvariable annuityD14E21G22G23
Type
Article
Information
Journal of Pension Economics & Finance , Volume 19 , Issue 3 , July 2020 , pp. 409 - 441
Copyright
Copyright © Cambridge University Press 2019

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