Practical considerations in variable annuity pricing
By Novian Junus and David Wang
28 February 2011
Since the introduction of variable annuities (VAs) in 1952, sales have grown, stimulated by offers of tax-deferred savings benefits as well as guaranteed living benefits and guaranteed minimum death benefits. Sales peaked in 2007 at more than $180 billion, but declined in the wake of the global financial crisis and a massive de-risking and reshuffling of the VA industry. A slow recovery was apparent in 2010, however, and now is an excellent time for actuaries working in VA design to analyze the pricing process, which seeks to strike a balance between risk and return. This paper discusses the four elements necessary for a comprehensive VA pricing process.