An Introduction to Premium Setting of Life Insurance Annuities

Abstract: This paper aims to introduce the reader to the premium setting of annuities within life insurance. This is done using a hypothetical annuity contract offered to 36-year-olds in Sweden. The contract provides an annual pension from age 65 until either the individual's death or age 90, after which payouts cease. The analysis employs life tables using real-life data to estimate mortality, discounting to decide present values, and calculates fair and risk-adjusted premia for lump sum and annual payment options using theory and simulations. Ultimately, we found that the method used was insufficient given the data. This is due to the last decades' rise in life expectancy, requiring us to use other methods to acquire accurate premia.