From annuities to life annuities

Ermanno Pitacco

1.1 INTRODUCTION: FRAMING LIFE ANNUITIES

Specific features of cashflow streams allow us to single out the concept of an “annuity”, and specific features of annuities lead to the concept of “life annuity”. This chapter proposes a framework under which life annuities can be classified according to their main characteristics.

We first present various examples of annuities, and then address life contingency products. Life contingency products have various purposes, while life annuities have particular financial and technical characteristics. Combining specific purposes with financial and technical characteristics leads to the definition of contingent annuities and, finally, of various types of life annuities.

We then look at the evolution of life annuities over the centuries, with the aim of explaining how features of life annuities as we know them have progressively been defined.

Quantitative tools are required for life annuity evaluations, and, notably, for premium and reserve calculations. Appropriate statistical bases must underpin life annuity evaluations. Calculation tools and statistical bases constitute the actuarial side of the life annuity world. A look at the

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