A unisex stochastic mortality model to comply with EU Gender Directive

An Chen and Elena Vigna

No 440, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: EU Gender Directive ruled out discrimination against gender in charging premium for insurance products. This prohibition prevents the use of the standard actuarial fairness principle to price life insurance products, with an evident negative effect on pricing efficiency. According to current actuarial practice, unisex premiums are calculated with a simple weighting rule of the gender-specific life tables. Up to our knowledge, there seems to be neither unisex fairness principle in the actuarial literature, nor unisex mortality model. This paper is the first attempt to fill this gap. First, we introduce a unisex fairness principle and the corresponding unisex fair premium. Then, we provide a unisex stochastic mortality model for the mortality intensity that is underlying the pricing of a life portfolio of females and males belonging to the same cohort. Finally, we calibrate the unisex mortality model using the unisex fairness principle. We find that the weighting coefficient between the males' and fem ales' own mortalities depends mainly on the quote of portfolio relative to each gender, on the age, and on the type of insurance product. We also investigate the impact of the correlation among the two mortality intensities on the weighting coefficient. The knowledge and the adoption of a proper unisex mortality model should help life insurance companies in many tasks, including pricing, reserving, profit testing, calculation of solvency capital requirements and, ultimately, should result in improved competitiveness.

Keywords: Actuarial fairness; unisex tariff; stochastic mortality intensity; Gender Directive; life table; doubly stochastic process. (search for similar items in EconPapers)
JEL-codes: C1 C13 C18 C38 J11 (search for similar items in EconPapers)
Pages: pages 29
Date: 2015
New Economics Papers: this item is included in nep-eur and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:440

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