Gender Equality Chapter 5

Practice Question 5.3 (Exam Style) Chapter 5 Legislation

In the solution provided in the course notes (In Bold Below)-

New Business Risk

If females are expected to live longer than males, then annuity rates priced on a gender-specific basis would be lower for women.
When pricing on a gender-neutral basis, the company has to make an assumption about the proportions of business that will be sold to females and males and set an average annuity rate reflecting that assumed split.
If the proportion of females in the actual new business sold is higher than the assumed proportion, …
… the company will make lower profits than expected …
… or even a loss. (If females are expected to live longer than males, then post applying a gender neutral approach to pricing of immediate annuities, Females would benefit by getting a higher annuity rate per pound of premium paid. Hence, Females would be better off. As we would be using a weighted average sort of statistic to arrive at the gender neutral annuity rate. And if the mix of females is higher than what we had assumed in pricing basis, it will lead to lower profits or even a loss.)

Anti-selection

The averaged annuity rate will appear relatively more attractive to males than to females.
Hence, it is more likely that males will buy the product under gender-neutral pricing than previously (under gender-specific pricing), and vice versa for females. (This contradicts the above point of the solution. Since, males will be getting a better annuity rate before the EU Gender Directive Law (Due to longevity of males being lower than females), it is unlikely for males to buy the product under gender neutral pricing (As the averaged annuity rate would go down for males. For Example - Consider, Gender specific Annuity rates for Female = 6 and Males = 10. Post the EU gender directive, lets assume a mix of 50% males and 50% females. This gives us a gender neutral price of 8. Hence, males are getting a lower annuity rate, because of the cross-subsidies with females, arising from the revised rating structure, as a result of the EU Gender Directive Law implementation) Does that mean their is a typo in the Notes or am I missing something?

New business volume

Many females may now decide not to purchase the product, but there may not be an equivalent
increase in new business from males.

(Again from above example, females are getting a better annuity rate of 8 post the EU Gender Directive implementation. Hence it would be incorrect to assume that the behaviour of the females would change to not buy annuities. Since, they would be getting a better annuity rate under the gender-neutral pricing approach, there should ideally be a behavioral change of more women buying annuities. Due to better value for money, that is a higher annuity rate) Again, Is this logic correct, or am I missing something?

 

Thanks Lindsay!

 

Hi Lindsay,

Just went through the corrections document. When we say gender specific (see text below in bold), it means different rates for males and females (Opposite of gender neutral), Right?

So the below sentence, using the above logic is correct in the course notes and doesn't require any correction. As on a, gender specific pricing, the annuity rates for women will be lower as compared to men. Due to higher longevity (for women) being assumed in the below sentence, women would ideally get a lower annuity rate, for each/per pound of premium paid to the insurer. Is this correct?

New Business Risk

If females are expected to live longer than males, then annuity rates priced on a gender-specific basis would be lower for women. (women has been changed to men in the corrections document for the subject SA2)