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Variable Annuities (VAs) are innovative retirement products sold by insurers. My dissertation studies actuarial and economic aspects of product heterogeneity in VAs. I use textual analysis to construct a VA product dataset from real contracts. Based on this dataset, I investigate two research questions that contribute to two different fields of study. On the economic side, I investigate the drivers of the frequent innovation and complex product design in the VA market. More specifically, using my dataset of real VA contracts, I establish a recurring patterns in benefit-specific markets, where more fundamental innovations are followed by products in the same category of increasing complexity. I argue this pattern points to a coexistence of "virtuous" and "obfuscating" innovation in the VA market, with the former offering previous unavailable risk management tools to consumers and completing retail retirement markets, and the latter increasing complexity to exploit unsophisticated consumers. On the actuarial side, I examine metamodeling approaches for VA portfolio evaluation using a subset of my data. More specifically, I extract payoff-relevant information from the textual descriptions for VAs with Guaranteed Minimum Accumulation Benefits, and develop a flexible simulation-based valuation framework. I examine the accuracy and efficiency of metamodeling methods with different sampling and learning components. I find that larger training samples and more sophisticated learners help with prediction accuracy at the cost of longer runtimes. In contrast to previous literature, sampling methods do not have a significant effect on the overall performance in my setting. Overall, this dissertation provides insights related to product diversity in the VA market that are relevant to consumers, insurers, and policymakers. For consumers, instead of shopping for the cheapest deal, it is important to understand one's own risk profile and choose a suitable product accordingly. For insurers, metamodeling presents a viable evaluation approach for the analysis of real-world VAs at the portfolio level, although the performance for accurately valuing individual contracts is frail. For policymakers concerned with regulating complexity in retirement products, contract standardization may be a double-edge sword: while it can help mitigate "obfuscating" innovation, it also may stifle "virtuous" innovation at the same time.
Actuarial Aspects of Individual Life Insurance and Annuity Contracts provides a comprehensive overview of the features and financial aspects of traditional, indexed, and variable products and their related rider benefits. Product development, pricing, financial reporting methods, and regulatory requirements are addressed for all products, including those with derivative-based guarantees. This provides an introduction to actuarial techniques and the relationships among various financial values for the student and provides a comprehensive summary of current practices on more recent products for the experienced actuary. Spreadsheets are available on the ACTEX website to demonstrate profit testing alternatives.
Variable Annuities provides an overview of all the relevant aspects of variable annuity (VA) products from an insurers perspective. It is a collection of contributions from several authors, co-ordinated in such a way that it covers all relevant areas with minimal overlap and a consistent level of detail.
This publication helps policy makers to better understand annuity products and the guarantees they provide in order to optimise the role that these products can play in financing retirement. Product design is a crucial factor in the potential role of annuity products within the pension system, along with the cost and demand for these products, and the resulting risks that are borne by the annuity providers. Increasingly complex products, however, pose additional challenges concerning consumer protection. Consumers need to be aware of their options and have access to unbiased and comprehensible advice and information about these products.
This book deals with Enterprise Risk Management (ERM) and, in particular, Quantitative Risk Management (QRM) in life insurance business. Constituting a “bridge” between traditional actuarial mathematics and insurance risk management processes, its purpose is to provide advanced undergraduate and graduate students in the Actuarial Sciences, Finance and Economics with the basics of ERM (in general) and QRM applied to life insurance business. The main topics dealt with are: general issues on ERM, risk management tools for life insurance and life annuities, deterministic and stochastic analysis of the behaviour of a portfolio fund, application of sensitivity testing to assess ranges of results of interest, stress testing to assess the impact of extreme scenarios, and the product development process for life annuity products.
Life insurance and life annuities are about cash flows, the time value of money, and the randomness of policyholders' death time. This book intends to present the actuarial model as a combination of these three factors. It also describes how to set premiums and reserves for those insurance products.
Intangible, invisible and worth trillions, risk is everywhere. Its quantification and management are key to the success and failure of individuals, businesses and governments. Whether you’re an interested observer or pursuing a career in risk, this book delves into the complex and multi-faceted work that actuaries undertake to quantify, manage and commodify risk—supporting our society and servicing a range of multi-billion-dollar industries. Starting at the most basic level, this book introduces key concepts in actuarial science, insurance and pensions. Through case studies, explanations and mathematical examples, it fosters an understanding of current industry practice. This book celebrates the long history of actuarial science and poses the problems facing actuaries in the future, exploring complex global risks including climate change, aging populations, healthcare models and pandemic epidemiology from an actuarial perspective. It gives practical advice for new and potential actuaries on how to identify an area of work to go into, how best to navigate (and pass!) actuarial exams and how to develop your skills post-qualification. A Risky Business illuminates how actuaries are central to society as we know it, revealing what they do and how they do it. It is the essential primer on actuarial science.
In-depth coverage of variable income annuities With trillions of dollars in retirement savings assets, the tens of millions of Americans on the precipice of retirement need to convert these savings into retirement income. The fact that variable income annuities (VIAs) generate maximum lifetime income with zero probability of outliving it has spurred the need for more information about VIAs. The Handbook of Variable Income Annuities is by far the most comprehensive source of information on this topic. This book thoroughly describes the most important principles of optimal asset liquidation and demystifies VIA mechanics, so readers can gain a high comfort level with this important financial instrument. Interestingly and clearly, The Handbook of Variable Income Annuities explains the mathematical pricing of variable income annuities, expected rates of return, taxation, product distribution, legal aspects, and much more. Jeffrey K. Dellinger (Fort Wayne, IN), a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries, has over 25 years experience in the financial services sector. He advises institutions on retirement income optimization, products, and markets.