Auswirkungen von Enhanced Annuities auf den Bestand eines Versicherers

The value for money of a standard annuity is the higher, the longer the life expectancy of an insured, and therefore it is only acceptable for persons with an above average life expectancy. The discrepancy is intensified by tax regulations that favor lifelong annuity payments opposed to a lump sum. This discrimination of impaired insureds could be prevented if so-called enhanced annuities were offered, i.e. products where the annuity paid is the larger, the lower the person’s life expectancy. The article presents a quantitative comparison of the risk profile of insurance companies offering standard annuity contracts compared to enhanced annuities and an analysis of the impact of adverse selection on a standard insurer. By definition of individual mortality rates a heterogeneous insurance portfolio is specified. Besides we model the individual underwriting of enhanced annuities. A Monte Carlo Simulation provides results to compare the profit/loss situation of a portfolio of traditional annuity products and a portfolio of enhanced annuities with individual underwriting of different quality and to assess the impact of selection effects.