Basic products and their relevant actuarial features

Ermanno Pitacco

2.1 INTRODUCTION: LIFE ANNUITIES FROM AN ACTUARIAL PERSPECTIVE

All life contingency products, and life annuities in particular, call for a number of evaluations; the calculation of premiums and reserves is the main purpose of the actuarial structures of the various products. Actuarial structures basically consist of a financial component and a biometric component. The former aims to assess the cashflow stream generated by the product at a given point in time; the latter aims to summarise the randomness in cashflows, which, in all life contingency products, is due to randomness in the lifetimes of one or more individuals (insureds or annuitants).

In this chapter we refer to life annuities involving just one annuitant, ie, single-life annuities. Only basic life annuity products are considered here, while more complex product structures will be addressed in the following chapters.

First, we present the biometric model and then describe the calculation of expected present values of benefits. Expected present values (ie, actuarial values) are then used for premium and reserves calculations. Numerical examples are provided to help understand the main financial and technical

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