Abstract
In this article, we study the fair fee of a flexible premium variable annuity (FPVA), in which the policyholder can choose to pay periodic premiums during the accumulation phase instead of a single initial premium. We are able to express fair fees using a fast and accurate approximation based on bounds on the price of the FPVA. We identify scenarios that are particularly costly for the insurer. Our study could help insurers estimate the magnitude of typical underpricing when offering flexible-premium variable annuities with the same fee as the corresponding single-premium variable annuity.
| Original language | English |
|---|---|
| Pages (from-to) | 63-86 |
| Number of pages | 24 |
| Journal | North American Actuarial Journal |
| Volume | 21 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2 Jan 2017 |
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