A Managed Volatility Investment Strategy for Pooled Annuity Products

Pooled annuity products, where the participants share systematic and idiosyncratic mortality risks as well as investment returns and risk, provide an attractive and effective alternative to traditional guaranteed life annuity products. While longevity risk sharing in pooled annuities has received re...

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Bibliographic Details
Published in:Risks (Basel) 2022-06, Vol.10 (6), p.121
Main Authors: Li, Shuanglan, Labit Hardy, Héloïse, Sherris, Michael, Villegas, Andrés M.
Format: Article
Language:English
Subjects:
Annuities
Asset allocation
Capital costs
Cost control
Equity
equity investment
Interest rates
Investment policy
Investments
longevity risk
managed volatility
Mortality
pooled annuity
Retirement
Retirement income
Volatility
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Summary:Pooled annuity products, where the participants share systematic and idiosyncratic mortality risks as well as investment returns and risk, provide an attractive and effective alternative to traditional guaranteed life annuity products. While longevity risk sharing in pooled annuities has received recent attention, incorporating investment risk beyond fixed interest returns is relatively unexplored. Incorporating equity investments has the potential to increase expected annuity payments at the expense of higher variability. We propose and assess a strategy for incorporating equity investments along with managed-volatility for pooled annuity funds. We show how the managed volatility strategy improves investment performance, while reducing pooled annuity income volatility and downside risk, as well as an investment strategy that reduces exposure to investment risk over time. We quantify the impact of pool size when equity investments are included, showing how these products are viable with relatively small pool sizes.
ISSN:2227-9091
2227-9091
DOI:10.3390/risks10060121