Modeling Assumptions Model points were analyzed for male, female and joint life contract holders at age 65. A moderate asset allocation was assumed with 60% exposure to the equity markets and 40% to fixed income. These policies were assumed to be at issue and â€œat-the-moneyâ€? with the value of initial covered assets and guaranteed base of $150,000. The life expectancy was calculated based on the mortality rates of the Annuity 2000 Basic Table. The following table further details the assumptions used:
Age Sex Equity Allocation Deferral Period Withdrawal Rate Fund fees Rider Fees Value of Initial Covered assets Guaranteed Benefit Base Life Expectancy
65 M, F, Joint Life 60% 0 Single life = 5%, Joint Life=4.5% 0.75% 1.00% 150,000 150,000 M=19yrs, F=22yrs, JL = 26yrs
Results The total accumulated claim paid by the insurer over the life of the contract was used to assess the market and longevity risk of these types of products. These claims are a measure of the total benefit that is paid to the contract holder who has chosen to invest in a contingent annuity product. The table below details the results for a male contract holder age 65. Here we show the distribution of claims if we assume this contract holder lives with certainty to their life expectancy of 19 years beyond age 65 (deterministic mortality). With a withdrawal rate of 5%, we know that in the absence of market risk and fees, this contract holder would receive 20 years of payments before their covered assets would be depleted (i.e., 20 payments equal to 5% of covered assets will result in 100% of the covered assets being withdrawn). The claims incurred in this simulation are a result of the performance of the covered assets in each scenario and the depletion of the covered assets prior to duration 19 (i.e., only market performance is affecting the claims).