Static risk measurement of life annuity products: the longevity model
(2018) , 26 pages
Files
ISBADP2018_24_devolder_Staticriskmeasurementoflifeannuityproducts_thelongevitymodel_dial.pdf
Restricted Access - Adobe PDF
- 3.33 MB
Details
- Authors
- Abstract
- For the sake of making life annuity products attractive and competitive in the market for both the insurer and the policyholder, there is a real need to reduce and to share the longevity risk among these two parties. On the insurer side, this risk increases its solvency capital (SC) and hence implies the increase of the annuity prices for the policyholder.The risk of a population living longer than expected is called longevity risk. In this work, we capture and measure the longevity risk. Our strategy is based on the computation of the solvency capital of an insurer with respect to his investment strategy of the ini- tial premium paid by the policyholders for a life annuity. By life annuity, we refer to a series of payments at fixed intervals, paid while the policyholder is alive. We achieve this using the Solvency II framework in which we consider the VaR as our (static) risk measure with a confidence level of 99,5%. We make the strong assumption according to which the market is fully hedged against any other risk different from the longevity risk: this is called longevity model. In order to model the force of mortality process we make use of the Hull-White model with the mean reversion parameter following the Gompertz mortality model. We found by the use of Monte Carlo simulation, that the SC stays con- stant with respect to time-to-retirement. Moreover, we compute the SC for a whole life annuity, a term annuity and a deferred annuity from which we establish some comparisons.
- Affiliations
Citations
Ngugnie Diffouo, P., & Devolder, P. (2018). Static risk measurement of life annuity products: the longevity model (ISBA Discussion Paper 2018/24). https://hdl.handle.net/2078.5/172968