Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-23T09:00:40.920Z Has data issue: false hasContentIssue false
  • English
  • Français

Guaranteed Annuity Options: Five Issues for Resolution

Published online by Cambridge University Press:  10 June 2011

C.D. O'Brien
C.D. O'Brien
Affiliation:
Centre for Risk and Insurance Studies, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, U.K. Tel: +044(0)115-846-6519; Fax: +044(0)115-846-6667; E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper considers five issues arising from guaranteed annuity options in pension policies issued by United Kingdom life assurance companies. These are the investment strategies for such options, the implications for bonuses on with-profits policies, the measurement of the solvency position and preparation of accounts of the companies concerned, and the policy debate on compulsory annuitisation. In particular, the paper highlights the impact of improving mortality on the value of options, comments on the House of Lords judgment in the Equitable Life case, and suggests additional disclosures in the accounts of life assurance companies.

Keywords

Guaranteed Annuity OptionsWith-Profits PoliciesSolvencyAccounting
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 8 , Issue 3 , 01 August 2002 , pp. 593 - 629
Copyright
Copyright © Institute and Faculty of Actuaries 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Accounting Standards Board (1999). Statement of principles for financial reporting.Google Scholar
Association of British Insurers (1998). Statement of recommended practice. Accounting for insurance business.Google Scholar
Association of British Insurers (2000). Raising standards.Google Scholar
Association of British Insurers (2001 ). Supplementary reporting for long term insurance business (the achieved profits method).Google Scholar
Bolton, M.J., Carr, D.H., Collis, P.A., George, C.M., Knowles, V.P. & Whitehouse, A.J. (1997). Reserving for annuity guarantees. The report of the Annuity Guarantees Working Party.Google Scholar
Cairns, A.J.G., Dickson, D.C.M., Macdonald, A.S., Waters, H.R. & Willder, M. (2000). Stochastic processes: learning the language, Centre for Actuarial Studies, University of Melbourne, Research paper no 76.Google Scholar
Clay, G.D., Frankland, R., Horn, A.D., Hylands, J.F., Johnson, C.M., Kerry, R.A., Lister, J.R., Loseby, R.L. & Newbould, B.R. (2001). Transparent with-profits — freedom with publicity. B.A.J. 7, 365–423.Google Scholar
Collier, I. (1998). Hedging annuity guarantees. The Actuary, December, 18–19.Google Scholar
Continuous Mortality Investigation Bureau (1999). Continuous mortality investigation reports. Number 17. Institute of Actuaries and Faculty of Actuaries.Google Scholar
Continuous Mortality Investigation Bureau (2000). Continuous mortality investigation reports. Number 19. Institute of Actuaries and Faculty of Actuaries.Google Scholar
Corley, R.D., Abbott, W.M., Murray, G.M., Woodley, K. & Caines, J. (2001). Report of the Corley Committee of Inquiry regarding the Equitable Life Assurance Society. Faculty of Actuaries and Institute of Actuaries.Google Scholar
Dickinson, G.M., Dinenis, E. & Siokis, V. (2001). Rethinking the solvency margin system in Europe. Insurance Research & Practice, 16 (1), 34–46.Google Scholar
Dunbar, N. (1999a). Sterling swaptions: volatility by the pound. Risk, September, 23–28.Google Scholar
Dunbar, N. (1999b). Sterling swaptions under new scrutiny. Risk, December, 33–35.Google Scholar
Faculty of Actuaries and Institute of Actuaries Life Board (2000). Annuity guarantees — briefing statement.Google Scholar
Faculty of Actuaries and Institute of Actuaries Life Board (2001). Note on the regulation of life assurance in the U.K.Google Scholar
Financial Services Authority (2001a). The future regulation of insurance.Google Scholar
Financial Services Authority (2001b). Interim prudential sourcebook: insurers.Google Scholar
Financial Services Authority (2001c). Report of the Financial Services Authority on the review of the regulation of the Equitable Life Assurance Society, from 1 January 1999 to 8 December 2000. TSO.Google Scholar
Gilhawley, T., Kennedy, A., Murphy, K., O'Shea, I. & Woods, B. (1999). Retirement Fund Options Committee Report. Society of Actuaries in Ireland.Google Scholar
Government Actuary (1999a). Reserving for guaranteed annuity options. Letter to Appointed Actuaries, 13 January.Google Scholar
Government Actuary (1999b). Reserving for guaranteed annuity options. Letter to Appointed Actuaries, 22 December.Google Scholar
Government Actuary (2000). National population projections 1998-based. TSO.Google Scholar
Hairs, C.J., Belsham, D.J., Bryson, N.M., George, C.M., Hare, D.J.P., Smith, D.A. & Thompson, S. (2002). Fair valuation of liabilities. B.A.J. 8, 203–340.Google Scholar
Hare, D.J.P., Dickson, J.A., McDade, P.A.P., Morrison, D., Priestley, R.P. & Wilson, G.J. (2000). A market-based approach to pricing with-profits guarantees. B.A.J. 6, 143–213 and 721–735.Google Scholar
Historic Records Working Party of the Insurance Institute of London (1972). History of options under life policies. Report, H.R. 14.Google Scholar
Holtham, D. (2000). Is there still life in with-profits?’ Money Management, October, 60–78.Google Scholar
International Accounting Standards Committee (1999). Insurance: an issues paper issued for comment by the Steering Committee on Insurance.Google Scholar
International Association of Insurance Supervisors (2000). Insurance core principles.Google Scholar
International Association of Insurance Supervisors Sub-Committee on Solvency and Actuarial Issues (2000). On solvency, solvency assessments and actuarial issues: an IAIS issues paper.Google Scholar
Lister, J., Brooks, P., Hurley, J., Maidens, I., McGurk, P. & Smith, D. (1999). Asset shares. The report of the Asset Share Working Party [of the Faculty and Institute of Actuaries].Google Scholar
Milevsky, M.A. (2000). The real option to delay annuitization: it's not now-or-never. Presented to the American Economics Association, 5 January 2001.Google Scholar
Moss, M. (2000). Standard Life 1825–2000. Edinburgh: Mainstream Publishing Company (Edinburgh) Limited.Google Scholar
Needleman, P.D. & Roff, T. (1995). Asset shares and their use in the financial management of a with-profits fund. B.A.J. 1, 603–688.Google Scholar
Ogborn, M.E. (1962). Equitable assurances. London: George Allen and Unwin Ltd.Google Scholar
Retirement Income Working Party (2000). Choices. An independent report to encourage the debate on retirement income.Google Scholar
Scott, P.G., Elliott, S.F., Gray, L.J., Hewitson, T.W., Lechmere, D.J., Lewis, D. & Needleman, P.D. (1996). An alternative to the net premium valuation method for statutory reporting. B.A.J. 2, 527–621.Google Scholar
Sithole, T.Z., Haberman, S. & Verrall, R.J. (2000). An investigation into parametric models for mortality projections, with applications to immediate annuitants' and life office pensioners' data. Insurance: Mathematics and Economics, 27, 285–312.Google Scholar
Treasury (1998). Guaranteed annuity option costs and policyholders' reasonable expectations. Letter to companies carrying on long-term insurance business, 18 December.Google Scholar
Treasury Select Committee (2001). Tenth report. Equitable Life and the life assurance industry: an interim report.Google Scholar
Van Bezooyen, J.T.S., Exley, C.J. & Mehta, S.J.B. (1998). Valuing and hedging guaranteed annuity options. Presented to the Institute and Faculty of Actuaries Investment Conference.Google Scholar
Wadsworth, M., Findlater, A. & Boardman, T. (2001). Reinventing annuities. Paper presented to the Staple Inn Actuarial Society.Google Scholar
Wilkie, A.D. (1995). More on a stochastic model for actuarial use. B.A.J. 1, 777–964.Google Scholar
Willets, R. (1999). Mortality in the next millennium. Paper presented to the Staple Inn Actuarial Society.Google Scholar
Wilson, C., Derbyshire, G., Jelicic, D., Kemp, M. & Williams, M. (2000). Applications of derivatives in life insurance. Paper presented to the Faculty and Institute of Actuaries Investment Conference.Google Scholar
Wright, P.W., Burgess, S.J., Chadburn, R.G., Chamberlain, A.J.M., Frankland, R., Gill, J.E., Lechmere, D. & Margutti, S.F. (1998). A review of the statutory valuation of long-term insurance business in the United Kingdom. B.A.J. 4, 803–864 and 1029–1058.Google Scholar