NATURAL HEDGING IN LONG-TERM CARE INSURANCE

Susanna Levantesi and Massimiliano Menzietti ()

ASTIN Bulletin, 2018, vol. 48, issue 1, 233-274

Abstract: We investigate the application of natural hedging strategies for long-term care (LTC) insurers by diversifying both longevity and disability risks affecting LTC annuities. We propose two approaches to natural hedging: one built on a multivariate duration, the other on the Conditional Value-at-Risk minimization of the unexpected loss. Both the approaches are extended to the LTC insurance using a multiple state framework. In order to represent the future evolution of mortality and disability transition probabilities, we use the stochastic model of Cairns et al. (2009) with cohort effect under parameter uncertainty through a semi-parametric bootstrap procedure. We calculate the optimal level of a product mix and measure the effectiveness provided by the interaction of LTC stand alone, deferred annuity and whole-life insurance. We compare the results obtained by the two approaches and find that a natural hedging strategy for LTC insurers is attainable with a product mix of LTC and annuities, but including low proportion of LTC.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:astinb:v:48:y:2018:i:01:p:233-274_00

Access Statistics for this article

More articles in ASTIN Bulletin from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().