The Determinants of mortality heterogeneity and implications for pricing annuities

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      <subfield code="a">The Determinants of mortality heterogeneity and implications for pricing annuities</subfield>
      <subfield code="c">Ramona Meyricke, Michael Sherris </subfield>
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      <subfield code="a">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.</subfield>
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      <subfield code="a">Mortalidad</subfield>
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      <subfield code="a">Cálculo actuarial</subfield>
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      <subfield code="a">Longevidad</subfield>
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      <subfield code="a">Igualdad entre los sexos</subfield>
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      <subfield code="a">Sherris, Michael</subfield>
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      <subfield code="t">Insurance : mathematics and economics</subfield>
      <subfield code="d">Oxford : Elsevier, 1990-</subfield>
      <subfield code="x">0167-6687</subfield>
      <subfield code="g">02/09/2013 Volumen 53 Número 2 - septiembre 2013 , p. 379-387</subfield>
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