Cohort Mortality Risk or Adverse Selection in the UK Annuity Market?
43 Pages Posted: 25 May 2013
Date Written: April 1, 2013
Abstract
The "money's worth" measure has been used to assess whether annuities are fairly valued and also as evidence for adverse selection in the annuity market. However, a regulated life assurer with concerns about predicting long-run mortality may price annuities to reduce these risks which will affect the money’s worth. We provide a simple model of the effect of cohort mortality risk on the money’s worth. We demonstrate that cohort mortality risk is quantitatively important, and show that it is not possible to identify the effect of a cohort mortality risk model from that of an adverse selection model.
Keywords: Adverse selection, insurance markets, annuities
JEL Classification: D4, D82, G22
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
New Evidence on the Money's Worth of Individual Annuities
By Olivia S. Mitchell, James M. Poterba, ...
-
The Cost of Annuities: Implications for Saving Behavior and Bequests
-
Annuities and Individual Welfare
By Thomas Davidoff, Jeffrey R. Brown, ...
-
Annuities and Individual Welfare
By Thomas Davidoff, Jeffrey R. Brown, ...
-
The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program
By Jeffrey R. Brown, Olivia S. Mitchell, ...
-
Joint Life Annuities and Annuity Demand by Married Couples
By Jeffrey R. Brown and James M. Poterba
-
Private Pensions, Mortality Risk, and the Decision to Annuitize
-
Longevity-Insured Retirement Distributions from Pension Plans: Market and Regulatory Issues