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Many assume that in the short run, annuity prices promptly and efficiently respond to changes in interest rates. Using a unique database of quotes, we show this is not the case. Prices are less sensitive to changes in rates than expected, and responses are asymmetric. Prices react more rapidly and with greater sensitivity to an increase than to a decrease in rates. The results are robust, but there is a small degree of heterogeneity in the responses of different insurance companies. When rates increase, larger firms are slightly quicker to improve prices. The opposite is true when rates decline. In sum, we show that the microstructure of annuity dynamics is more complicated than (simply) adding mortality credits to bond yields., INTRODUCTION It is well known in the literature that prices of life annuities depend on two major factors--the concurrent term structure of interest rates and mortality probabilities (e.g., Dickson, Hardy, [...]

ABSTRACT The authors analyze a tax arbitrage opportunity that results from engaging in two seemingly counterintuitive transactions in the Canadian insurance market. Specifically, if an individual acquires a fixed immediate [...]