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A dynamic equivalence principle for systematic longevity risk management

Hamza Hanbali, Michel Denuit, Jan Dhaene () and Julien Trufin

Insurance: Mathematics and Economics, 2019, vol. 86, issue C, 158-167

Abstract: This paper addresses systematic longevity risk in long-term insurance business. We analyze the consequences of working under unknown survival probabilities on the efficiency of the Law of Large Numbers and point out the need for appropriate and feasible risk management techniques. We propose a setting for risk sharing schemes between the insurer and policyholders via a dynamic equivalence principle. We focus on a pure endowment contract and derive conditions for a viable risk sharing scheme which enhances the solvency situation of the insurer while being more favorably priced for the policyholders.

Keywords: Systematic longevity risk; Risk sharing; Solvency; Dynamic equivalence principle; (Conditional) Law of large numbers (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:insuma:v:86:y:2019:i:c:p:158-167