Ermanno Pitacco

At the time of writing, in insurance work (and, notably, in actuarial work), considerable attention is being paid to the management of life annuity portfolios and to annuity product design, because of the growing importance of annuity benefits paid by private pension schemes and individual policies.

In particular, the progressive shift in many countries from defined-benefit to defined-contribution pension schemes has increased the interest in life annuity products with a guaranteed periodic benefit. Nevertheless, looking at the product from both the annuity provider’s and the customer’s perspectives, various “weak” features of the (traditional) life annuity should be noted.

However, many features can be improved by moving from traditional standard products to more complex products, for example, by adding appropriate riders (ie, supplementary benefits), adopting restrictions in the age intervals covered or allowing for individual risk factors, and hence “tailoring” the annuity rates (at least to some extent) to specific customer characteristics.

Life annuities can be analysed from various perspectives, particularly the following.

    • An individual behavioural

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