Practical considerations in variable annuity pricing

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By David Wang, Novian E. Junus | 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.