A survey of the UK annuity market published by the Department of Work and Pensions (DWP) has highlighted potential risks for the insurance industry in dealing with longevity risk and long-term debt shortages.
According to the independent academic research, there are two sets of annuity risks which insurers face with regards to the availability of matching assets. The first is interest rate risk, because the duration of assets is typically less than the liabilities, and secondly the cohort longevity risk, where future and subsequent cohorts of individuals live longer, and providers have to honour annuity contracts which become unprofitable. The 144-page report looks at the demand, supply and regulation for annuities, which the authors say serves as a basis for understanding the implications of ...
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