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Solvency requirements for pension annuities

Published online by Cambridge University Press:  02 September 2003

ANNAMARIA OLIVIERI  and
ERMANNO PITACCO
ANNAMARIA OLIVIERI
Affiliation:
Dipartimento di Studi Economici e Quantitativi, University of Parma, Via J.F. Kennedy, 6-I 43100 Parma, Italy. (e-mail: [email protected])
ERMANNO PITACCO
Affiliation:
Dipartimento di Matematica Applicata ‘B. de Finetti’, University of Trieste, Piazzale Europa, 1-I 34127 Trieste, Italy. (e-mail: [email protected])
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Abstract

This paper deals with solvency requirements for life annuities portfolios and funded pension plans. Particular emphasis is devoted to longevity risk, i.e. the risk arising from uncertainty in future mortality trends. This risk must be faced by insurance companies and pension plans that have guaranteed lifelong payoffs.

Solvency is investigated referring to immediate annuities, and hence the so-called decumulation phase is addressed. To assess solvency, assets are compared with the random present value of liabilities. Several requirements are considered, each leading to a required asset level that must be financed both with premiums (or contributions) and capital allocation.

Type
Research Article
Information
Journal of Pension Economics & Finance , Volume 2 , Issue 2 , July 2003 , pp. 127 - 157
Copyright
© 2003 Cambridge University Press

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Footnotes

This research work was partially supported by the Italian MIUR. The authors are grateful to the anonymous referees for their useful remarks.