Work

Dynamic tonuity: Adapting retirement benefits to a changing environment

Year: 2025

Type: article

Abstract: The tonuity, proposed by Chen et al. ((2019) ASTIN Bulletin: The Journal of the IAA, 49(1), 530.), is a combination of an immediate tontine and a deferred annuity. However, its switching time from tontine to annuity is fixed at the moment the contract is closed, possibly becoming sub-optimal if mortality changes over time. This article introduces an alternative tonuity product, wherein a dynamic switching condition is pivotal, relying on the observable mortality trends within a reference population. The switching from tontine to annuity then occurs automatically once the condition is satisfied. Using data from the Human Mortality Database and UK Continuous Mortality Investigation, we demonstrate that, in a changing environment, where an unforeseen mortality or longevity shock leads to an unexpected increase or decrease in mortality rates, the proposed dynamic tonuity contract can be preferable to the regular tonuity contract.

Source: Astin Bulletin

DOI: 10.1017/asb.2025.5

Authors: An Chen, Yusha Chen, Manuel Rach

Institutions: Universität Ulm, Southwestern University of Finance and Economics, University of St.Gallen

Language: English

Topic: Insurance, Mortality, Demography, Risk Management

Subfield: Demography

Field: Social Sciences

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4408259353

FWCI:

Cites: 35

Cited by:

Related to: 10