Defined terms for the annuity market and lifetime income landscape.
Drawdown is the percentage decline in a portfolio's value from a prior peak to a subsequent trough, measuring how far the portfolio has fallen from its best previous level at any given point.
Duration is a measure of how much a bond's price will change when interest rates change, expressed in years and equal to the average time until the bond's cash flows are received.
Duration matching is the asset-liability management practice of structuring an asset portfolio so the weighted-average timing of its expected cash inflows aligns with the timing of the carrier's income obligations, so the two sides of the balance sheet respond to rate changes in tandem.
Duration risk in the annuity context is the exposure of an insurance carrier's economic position and future contract pricing to interest rate movements, arising from the sensitivity of both assets and liabilities to rate changes and from any mismatch between the two.
