Analysis of survivorship life insurance portfolios with stochastic rates of return

Li Chen, Luyao Lin, Yi Lu and Gary Parker

Insurance: Mathematics and Economics, 2017, vol. 75, issue C, 16-31

Abstract: A general portfolio of survivorship life insurance contracts is studied in a stochastic rate of return environment with a dependent mortality model. Two methods are used to derive the first two moments of the prospective loss random variable. The first one is based on the individual loss random variables while the second one studies annual stochastic cash flows. The distribution function of the present value of future losses at a given valuation time is derived. For illustrative purposes, an AR(1) process is used to model the stochastic rates of return, and the future lifetimes of a couple are assumed to follow a copula model. The effects of the mortality dependence, the portfolio size and the policy type, as well as the impact of investment strategies on the riskiness of portfolios of survivorship life insurance policies are analyzed by means of moments and probability distributions.

Keywords: Survivorship life insurance; Insurance portfolio; Stochastic rate of return; Dependent mortality Model; Frank’s Copula (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:75:y:2017:i:c:p:16-31

DOI: 10.1016/j.insmatheco.2017.04.001

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