Individual Annuity Demand under Aggregate Mortality Risk

Introduction the model results summary and directions for further researchreferencesciting literaturepdfpdf toolsrequest permissionexport citationadd to favoritestrack citation share give accessshare full text accessshare full text accessplease review our terms and conditions of use and check box below to share full-text version of article.i have read and accept the wiley online library terms and conditions of use.shareable linkuse the link below to share a full-text version of this article with your friends and colleagues. Learn more.copy urlshare a linkemailfacebooktwitterlinked inreddit .inline-equation { overflow-x:auto; } aggregate mortality risk—the risk that the mortality trend in a population changes in a nondeterministic way—and its implications for corporate decisions has recently been the subject of lively scientific discussion. We show that aggregate mortality risk is also a key determinant for individual annuitization decisions. Aggregate mortality risk appears to be a risk very difficult to transfer for individuals. Whether its existence leads to a higher or lower annuity demand depends on objective factors (e.g., insurers’ vulnerability to aggregate mortality changes). Subjective factors (i.e., individuals’ preferences) determine only the intensity of the annuity demand reaction to aggregate mortality risk. Our results are of significant importance not only for financial planning approaches of individual annuity buyers but also for strategic decisions in insurance companies and for solvency regulators. Furthermore, consideration of aggregate mortality risk may alleviate, but also intensify, the annuity puzzle.