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Stochastic Mortality, Macroeconomic Risks and Life Insurer Solvency

Katja Hanewald, Thomas Post and Helmut Gründl

The Geneva Papers on Risk and Insurance - Issues and Practice, 2011, vol. 36, issue 3, 458-475

Abstract: Motivated by a recent demographic study establishing a link between macroeconomic fluctuations and the mortality index kt in the Lee–Carter model, we develop a dynamic asset-liability model to assess the impact of macroeconomic fluctuations on the solvency of a life insurance company. Liabilities in this stochastic simulation framework are driven by a GDP-linked variant of the Lee–Carter mortality model. Furthermore, interest rates and stock prices react to changes in GDP, which itself is modelled as a stochastic process. Our simulation results show that insolvency probabilities are significantly higher when the reaction of mortality rates to changes in GDP is incorporated.

Date: 2011
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Related works:
Working Paper: Stochastic mortality, macroeconomic risks, and life insurer solvency (2011)
Working Paper: Stochastic mortality, macroeconomic risks, and life insurer solvency (2009) Downloads
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