Wharton Pension Research Council Working Papers

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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 been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of participating lifetime annuities, an insurance product that pays retirees guaranteed lifelong benefits along with variable nonguaranteed surplus. Our goal is to illustrate how accounting and actuarial techniques for this product shape policyholder wellbeing as well as insurer profitability and stability. We show that smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could undermine the market for long-term retirement payout products.


All opinions and any errors are solely those of the authors and not of the institutions with whom the authors are affiliated. © 2014 Maurer, Mitchell, Rogalla, and Siegelin.

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All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2014 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors are grateful for research support provided by the TIAA-CREF Research Institute, the German Investment and Asset Management Association (BVI), the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania; and the Metzler Exchange Professor program. They also thank Benny Goodman and Michael Heller, and participants at Wharton’s AEW Seminar, for comments. This research is part of the NBER programs on Aging, Public Economics, and Labor Studies.

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Date Posted: 26 June 2019