Longevity risk measurement of life annuity products

This paper captures and measures the longevity risk generated by an annuity product. The longevity risk is materialized by the uncertain level of the future liability compared to the initially foretasted or expected value. Herein we compute the solvency capital (SC) of an insurer selling such a prod...

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Bibliographic Details
Published inRisks (Basel) Vol. 8; no. 1; pp. 1 - 16
Main Authors Diffouo, Pauline M. Ngugnie, Devolder, Pierre
Format Journal Article
LanguageEnglish
Published Basel MDPI 01.03.2020
MDPI AG
Subjects
Annuities
Cash flow
Confidence
Expected values
Insurance companies
Insurance premiums
Interest rates
Internal rate of return
Liability
life annuity
Life expectancy
Life insurance
longevity risk
Mortality
Pension funds
Policyholders
risk measurement
Simulation
Solvency
solvency capital
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Summary:This paper captures and measures the longevity risk generated by an annuity product. The longevity risk is materialized by the uncertain level of the future liability compared to the initially foretasted or expected value. Herein we compute the solvency capital (SC) of an insurer selling such a product within a single risk setting for three different life annuity products. Within the Solvency II framework, we capture the mortality of policyholders by the mean of the Hull-White model. Using the numerical analysis, we identify the product that requires the most SC from an insurer and the most profitable product for a shareholder. For policyholders we identify the cheapest product by computing the premiums and the most profitable product by computing the benefit levels. We further study how sensitive the SC is with respect to some significant parameters.
ISSN:2227-9091
2227-9091
DOI:10.3390/risks8010031