Accounting-based Asset Return Smoothing in Participating Life Annuities: Implications for Annuitants, Insurers, and Policymakers

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Wharton Pension Research Council Working Papers
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Maurer, Raimond
Mitchell, Olivia S
Rogalla, Ralph
Siegelin, Ivonne
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This chapter outlines the conditions under which accounting-based smoothing can be beneficial for policyholders who hold with-profit or participating payout life annuities (PLAs). We use a realistically-calibrated model of PLAs to explore how alternative accounting techniques influence policyholder welfare as well as insurer profitability and stability. We find that accounting smoothing of participating life annuities is favorable to consumers and insurers, as it mitigates the impact of short-term volatility and enhances the utility of these long-term annuity contracts.

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2015-08-02
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The published version of this Working Paper may be found in the 2016 publication: Retirement System Risk Management (https://pensionresearchcouncil.wharton.upenn.edu/retirement-system-risk-management-2/).
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