Defined terms for the annuity market and lifetime income landscape.
Lapse rate is the percentage of annuity contracts in a given cohort that terminate before maturity in a given period, typically expressed as an annual rate and tracked by contract year because lapse behavior changes systematically as the contract ages.
A legacy block is a closed group of in-force insurance or annuity contracts administered until their natural termination, with no new contracts added to the block, typically arising from a discontinued product line or from contracts transferred to a different carrier through reinsurance or sale.
Liability-driven investing is an investment philosophy in which the structure and composition of an asset portfolio is set primarily by reference to the obligations the portfolio must fund, rather than by reference to a market index or an absolute return target taken in isolation.
Modified coinsurance is a reinsurance structure in which the reinsurer assumes a share of premium, claims, and reserves, but the assets supporting the ceded reserves remain on the ceding carrier's balance sheet, with investment income paid through to the reinsurer.
Mortality loading is the component of an annuity's pricing that compensates the carrier for the uncertainty in its mortality assumptions and for the cost of holding reserves and capital against the possibility that the priced pool lives longer than the carrier's best estimate projects.
