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Annuities started at a time when the markets weren't as volatile and they could arbitrage between lower bond yields and statistically higher equity returns over time. Providers had the capital pool to ride out bear years from the excess returns they made in bull years since the upside to the annuity holder was seriously limited. The margins they realized in bull years was lucrative enough to maintain a guaranteed payment over all years even in instruments where capital is returned at the end. But increasing volatility and black swan events are making that risky leaving too many scams to play.
Some of the annuities work the same way as insurance when the capital isn't returned on death. You can create actuarial tables based on life expectancy and average market returns and over a pool of people, you can calculate how much of the capital you get as people die and how much you have to guarantee for the still living. Basically, people who die earlier than expected pay for the guarantees of those who live beyond expectations and the provider's profit margins. It is an insurance game.
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Regards,
Ted
Some of the annuities work the same way as insurance when the capital isn't returned on death. You can create actuarial tables based on life expectancy and average market returns and over a pool of people, you can calculate how much of the capital you get as people die and how much you have to guarantee for the still living. Basically, people who die earlier than expected pay for the guarantees of those who live beyond expectations and the provider's profit margins. It is an insurance game.