Table V.

Out–of-sample fit

	60 Females	65 Females	60 Males	65 Males	Overall
Life Expectency:
5th percentile	87.4	86.7	79.4	81.4	79.8
Median individual	88.1	87.4	80.0	82.1	82.2
95th percentile	88.8	88.2	80.7	82.8	88.4
U.K. mortality table	82.5	83.3	78.9	80.0	80.5
Expected value of payments:
0 year guarantee	19.97	20.34	20.18	21.41	20.63
5 year guarantee	19.77	20.01	19.72	20.64	20.32
10 year guarantee	19.44	19.49	19.12	19.61	19.45
Entire sample	19.79	20.05	19.74	20.66	20.32
Break-even interest rate	0.0414	0.0430	0.0409	0.0473	0.0448

This table summarizes the fit of our estimates out of sample. The top panel report life expectancies for different percentiles of the mortality distribution, using the parametric distribution on mortality to predict mortality beyond our mortality observation period. The bottom row of this panel presents the corresponding figures for the average pensioner, based on the PFL/PML 1992 period tables for “life office pensioners” (Institute of Actuaries (1992)). While the predicted life expectancy is several years greater, this is not a problem of fit; a similar difference is also observed for survival probabilities within sample. This simply implies that the average “life office pensioner” is not representative of our sample of annuitants. The bottom panel provides the implications of our mortality estimates for the profitability of the annuity company. These expected payments should be compared with 20, which is the amount annuitized for each individual in the model. Of course, since the payments are spread over a long horizon of several decades, the profitability is sensitive to the interest rate we use. The reported results use our baseline assumption of a real, risk-free interest rate of 0.043. The bottom row provides the interest rate that would make the annuity company break even (net of various fixed costs).