Next Article in Journal
A Note on Upper Tail Behavior of Liouville Copulas
Next Article in Special Issue
Immunization and Hedging of Post Retirement Income Annuity Products
Previous Article in Journal
A Note on Health Insurance under Ex Post Moral Hazard
Article Menu

Export Article

Open AccessFeature PaperArticle
Risks 2016, 4(4), 39; doi:10.3390/risks4040039

Frailty and Risk Classification for Life Annuity Portfolios

1
Department of Economics, University of Parma, Via J.F. Kennedy 6, 43125 Parma, Italy
2
DEAMS ‘B. de Finetti’, University of Trieste, Via dell’Università 1, 34100 Trieste, Italy
*
Author to whom correspondence should be addressed.
Academic Editor: Mogens Steffensen
Received: 15 September 2016 / Revised: 14 October 2016 / Accepted: 17 October 2016 / Published: 26 October 2016
(This article belongs to the Special Issue Designing Post-Retirement Benefits in a Demanding Scenario)
View Full-Text   |   Download PDF [450 KB, uploaded 26 October 2016]   |  

Abstract

Life annuities are attractive mainly for healthy people. In order to expand their business, in recent years, some insurers have started offering higher annuity rates to those whose health conditions are critical. Life annuity portfolios are then supposed to become larger and more heterogeneous. With respect to the insurer’s risk profile, there is a trade-off between portfolio size and heterogeneity that we intend to investigate. In performing this, there is a second and possibly more important issue that we address. In actuarial practice, the different mortality levels of the several risk classes are obtained by applying adjustment coefficients to population mortality rates. Such a choice is not supported by a rigorous model. On the other hand, the heterogeneity of a population with respect to mortality can formally be described with a frailty model. We suggest adopting a frailty model for risk classification. We identify risk groups (or classes) within the population by assigning specific ranges of values to the frailty within each group. The different levels of mortality of the various groups are based on the conditional probability distributions of the frailty. Annuity rates for each class then can be easily justified, and a comprehensive investigation of insurer’s liabilities can be performed. View Full-Text
Keywords: voluntary annuities; underwritten annuities; heterogeneity; standard risk; substandard risk; preferred risk; issue-select mortality rates voluntary annuities; underwritten annuities; heterogeneity; standard risk; substandard risk; preferred risk; issue-select mortality rates
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

Scifeed alert for new publications

Never miss any articles matching your research from any publisher
  • Get alerts for new papers matching your research
  • Find out the new papers from selected authors
  • Updated daily for 49'000+ journals and 6000+ publishers
  • Define your Scifeed now

SciFeed Share & Cite This Article

MDPI and ACS Style

Olivieri, A.; Pitacco, E. Frailty and Risk Classification for Life Annuity Portfolios. Risks 2016, 4, 39.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top