Longevity Risk in Life Insurance

Elif Ceylan () and Seher A. Tezergil
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Elif Ceylan: School of Banking and Insurance, Marmara University
Seher A. Tezergil: School of Banking and Insurance, Marmara University

A chapter in New Challenges in Banking and Finance, 2017, pp 87-104 from Springer

Abstract: Abstract In last years, longevity risk became as an important issue. One of the sectors that deal with longevity risk in their evaluations is insurance sector uses human life information as an input. If longevity risk is neglected, this case will cause to put false financial equivalence and also will bring the institutions face to face with serious losses during their capital adequacy calculations. The aim of this work is showing that capital liability is decreasing when we use longevity swap that is one of hedging approaches. Longevity swap is selected as an instrument for hedging. Lee-Carter model is applied to swap and mortality ratio equation. Estimation is done to swap and mortality ratio equation by using Monte Carlo simulation. Two conditions which are hedged and non-hedged cases were compared and has shown that under definig correct swap cost hedging provides to its user remarkable saving.

Keywords: Longevity risk; Longevity swap; Mortality ratios; Lee-Carter model; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-66872-7_8

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DOI: 10.1007/978-3-319-66872-7_8

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