Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

11-2016

Publication Source

Insurance: Mathematics and Economics

Volume

71

Start Page

268

Last Page

283

DOI

10.1016/j.insmatheco.2016.09.007

Abstract

Life insurers use accounting and actuarial techniques to smooth reporting of firm assets and liabilities, seeking to transfer surpluses in good years to cover benefit payouts in bad years. Yet these techniques have been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of a participating life annuity, an insurance product that pays retirees guaranteed lifelong benefits along with variable non-guaranteed surplus. Our goal is to illustrate how accounting and actuarial techniques for this type of financial contract shape policyholder wellbeing, along with insurer profitability and stability. Smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could undermine the market for long-term retirement payout products.

Copyright/Permission Statement

© 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

smoothing, variable annuity, life insurance, retirement, historical cost accounting, fair market valuation

Embargo Date

9-22-2018

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Date Posted: 27 November 2017

This document has been peer reviewed.