There are various products in the financial and insurance market with attractive trade names, to include the classic annuities. We, the actuaries, can assess the monthly amount that a person can charge if they live and by paying their corresponding premium. Or, in other words, from the initial amount of the premium, we can determine what rent he will receive if he is still alive.
The transfer of the positive risk of living the longer the better is assumed by the insurance company that insures a sufficient group to manage its obligations. The technical factors, survival tables, interest rate of the operation and management expenses, are essential whenever the volume of annuities is large. Otherwise, it would be the same as playing at the casino.
In practice, in most cases, annuities are contracted with other coverage. Normally, with death coverage, with benefits initially determined, not too frequent, or benefits in the event of the death of the first insured, who collects the guaranteed income, which will be the result of the management by the insurance company of the investments of the contract. For the latter case, the investment risk does not lie with the insurance company but with the contract taker and / or its beneficiaries. It is necessary to seek advice from independent professionals, with the aim of contracting the product according to the interests of the client and not being part of the group of large numbers that guarantees the actuarial equivalence of all the insured and the profits of the insurance company.
Life annuities, if the insurance company does not link any portfolio of assets, the maximum interest rate it can offer is 0.54% by 2021, which is 5 tenths less than in 2020. This trend is the usual one for last years in the financial market of interest rates. But fundamental factors, such as inflation, although there is no consensus on whether it will be temporary or permanent, is already having an impact on higher interest rates. The benchmark for 20-year Spanish debt, 1.00%, has doubled in the last year.
A 65-year-old man and woman who live with a partner, are of normal weight, who smoke and drink alcohol occasionally, and who play sports regularly, with almost never stress, will live to be 85 and 88, respectively. This means that, for every 100,000 euros, the man can receive a monthly rent while he lives of 400 euros and the woman of 360 euros. If the interest rate continues to rise, the rent amounts as well. The general rule will be that, if the attractive product they offer is excessively far from the amounts of the annuity, there is not only survival coverage but also other coverage such as death benefits.
The actuary and economist Jaume Quibus holds a master’s degree in Financial Economics and Accounting, a degree in Actuarial and Financial Sciences, a degree in Economic and Business Studies from the University of Barcelona and has completed the Management Development Programme at the IESE Business School of the University of Navarra. He is a full member of the following associations: the Catalan Actuarial Association, the Spanish Actuarial Association, the Catalan Economists Association, the International Actuarial Association, the Catalan Association of Accounting and Management and also a member of the IESE Business School Alumni. He was a founding partner in 1998 of the actuarial company Quibus, and is corporate member number 6 in the Catalan Actuarial Association.