The Determinants of mortality heterogeneity and implications for pricing annuities

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<title>Determinants of mortality heterogeneity and implications for pricing annuities</title>
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<namePart>Meyricke, Ramona</namePart>
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<namePart>Sherris, Michael</namePart>
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<abstract displayLabel="Summary">Standard annuities are offered at one price to all individuals of the same age and gender. Individual mortality heterogeneity exposes insurers to adverse selection since only relatively healthy lives are expected to purchase annuities. As a result standard annuities are priced assuming above-average longevity, making them expensive for many individuals. In contrast underwritten annuity prices reflect individual risk factors based on underwriting information, as well as age and gender. While underwriting reduces heterogeneity, mortality risk still varies within each risk class due to unobservable individual risk factors, referred to as frailty. This paper quantifies the impact of heterogeneity due to underwriting factors and frailty on annuity values. Heterogeneity is quantified by fitting Generalized Linear Mixed Models to longitudinal data for a large sample of US males. The results show that heterogeneity remains after underwriting and that frailty significantly impacts the fair value of both standard and underwritten annuities. We develop a method to adjust annuity prices to allow for frailty.</abstract>
<note type="statement of responsibility">Ramona Meyricke, Michael Sherris </note>
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<topic>Mortalidad</topic>
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<topic>Cálculo actuarial</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080573614">
<topic>Renta vitalicia</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080555016">
<topic>Longevidad</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080614263">
<topic>Igualdad entre los sexos</topic>
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<topic>Tarificación</topic>
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<title>Insurance : mathematics and economics</title>
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<publisher>Oxford : Elsevier, 1990-</publisher>
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<identifier type="issn">0167-6687</identifier>
<identifier type="local">MAP20077100574</identifier>
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<text>02/09/2013 Volumen 53 Número 2 - septiembre 2013 , p. 379-387</text>
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