Skip to main content Accessibility help
Hostname: page-component-5cfd469876-tkzrn Total loading time: 0.185 Render date: 2021-06-24T11:22:23.828Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true }

Variable Annuities

Published online by Cambridge University Press:  10 June 2011

M. C. Ledlie
Standard Life, 30 Lothian Road, Edinburgh EH2 1DE, U.K. Tel: +44(0)1312451003; Email:


This paper provides a detailed overview of variable annuities. Consideration is given first to the definition of the term variable annuity. Common terminology used in the variable annuity market is introduced. The current state of the United Kingdom and other international markets is described. Then, by reference to a simplified product, an analysis of customer outcomes, pricing, reserving, risk management and hedging is carried out. The paper ends with a description of current U.K. pensions legislation and how it potentially constrains product development.

Sessional meetings: papers and abstracts of discussions
Copyright © Institute and Faculty of Actuaries 2008

Access options

Get access to the full version of this content by using one of the access options below.


Abkemeier, N., Bennett, D.J. & Hamann, B. (2006). Target marketing: the watchwords for capturing retirement income opportunities. Milliman Research Report 2006.Google Scholar
Black, F. & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81.CrossRefGoogle Scholar
Brogden, A., Esparragoza, J.C. & Finkelstein, G.S. (2007). Building bridges. Life & Pensions, January 2007.Google Scholar
Devine, C., Hunt, H. & Walsh, K. (2004). The new variable annuity. Citibank Smith Barney Equity Research.Google Scholar
Drinkwater, M. (2007). Guaranteed living benefit utilisation. LIMRA International.Google Scholar
Fagan, C. (1977). Maturity guarantees under investment-linked contracts, Society of Actuaries in Ireland.Google Scholar
Hanif, F., Finkelstein, G., Corrigan, J. & Hocking, J. (2007). Life insurance, global variable annuities. Morgan Stanley Research in co-operation with Milliman.Google Scholar
Hardy, M. (2003). Investment guarantees: modelling and risk management for equity-linked life insurance. Wiley.Google Scholar
Harrison, J.M. & Kreps, D. (1979). Martingales and arbitrage in multi-period securities markets. Journal of Economic Theory, 20, 381408.CrossRefGoogle Scholar
Harrison, J.M. & Pliska, S. (1981). Martingales and stochastic integrals in the theory of continuous trading. Stochastic Proceedings and their Applications, 11, 215260.CrossRefGoogle Scholar
Hull, J. (2006). Options, futures and other securities, 6th edition. Prentice Hall International.Google Scholar
Ino, R. (2006). Variable annuity market in Japan: the Sun also rises. Milliman Global Newsletter, September.Google Scholar
Maturity Guarantees Working Party (1980). Report of the Maturity Guarantees Working Party. Journal of the Institute of Actuaries, 107, 103212.CrossRefGoogle Scholar
Mercer Oliver Wyman (2006). Grey expectations. April.Google Scholar
Milliman (2006). Milliman survey confirms dominance of guarantees in VA retirement products. Yahoo Finance, December.Google Scholar
Mo, X. (2007). Modelling and managing policyholder behaviour risks. Third Annual Equity Based Insurance Guarantees Conference, Chicago, 2007.Google Scholar
Møller, T. & Steffensen, M. (2007). Market valuation methods in life and pension insurance. Cambridge University Press.CrossRefGoogle Scholar
Moody's Investor Services, Global Credit Research (2006). Variable annuity writers improve results for embedded options: Moody's results of VA hedging survey. Special Comment, March.Google Scholar
NAVA (2006). Annuity f act book, 2006. National Association of Variable Annuity Writers.Google Scholar
Pelsser, A (2003). Pricing and hedging guaranteed annuity options via static option replication. Insurance: Mathematics and Economics, 33(2), 283296. Papers presented at the 6th IME Conference, Lisbon, 15-17 July 2002, and at the AFIR Colloquia (Maastricht).Google Scholar
Redington, F.M. (1952). Review of the principles of life-office valuations. Journal of the Institute of Actuaries, 78, 286.Google Scholar
Society of Actuaries (2005). Variable annuity guaranteed benefits survey results. Policyholder Behaviour in the Tail Risk Management Working Group.Google Scholar
Su, K. (2007). A pricing analysis of guaranteed lifetime withdrawal benefits, MSc. Dissertation, Cass Business School, City University.Google Scholar
Wilkie, A.D., Waters, H.R. & Yang, S. (2004). Reserving, pricing and hedging for policies with guaranteed annuity options. British Actuarial Journal.Google Scholar
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Variable Annuities
Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

Variable Annuities
Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

Variable Annuities
Available formats

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *