Working Paper: NBER ID: w20124
Authors: Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla; Ivonne Siegelin
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. Nevertheless, 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 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.
Keywords: No keywords provided
JEL Codes: G22; J14; J32; M41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| smoothing techniques (C51) | enhance policyholder wellbeing (G52) |
| smoothing techniques (C51) | insurer profitability (G52) |
| smoothing techniques (C51) | reduced payout volatility (G35) |
| smoothing (C51) | stabilize payouts for annuitants (G52) |
| smoothing (C51) | mitigate impact of capital market fluctuations on benefit payments (G52) |
| without smoothing (C29) | risk of depleted reserves (Q31) |
| risk of depleted reserves (Q31) | reduced payouts during adverse market conditions (G35) |
| historical cost valuation (N20) | policyholder welfare (G52) |
| historical cost valuation (N20) | insurer profitability (G52) |
| smoothing (C51) | economically attractive for risk-averse annuitants (G52) |
| smoothing (C51) | manageable for insurers (G52) |