infonet-economy

We analyze the effect of enhanced annuities on an insurer engaging in individual underwriting. We use a frailty model for the heterogeneity of the insured population and model the individual underwriting by a random variable that positively correlates with the corresponding frailty factor. For a given annuity portfolio, we analyze the effect of the quality of the underwriting on the insurer's profit/loss situation and the impact of adverse selection effects.