Mortality regimes and longevity risk in a life annuity portfolio

Killian Lemoine

Scandinavian Actuarial Journal, 2015, vol. 2015, issue 8, 689-724

Abstract: This paper explores the presence of changes of trends or jumps in French mortality from 1947 to 2007, and assesses their implications on the longevity risk management of a life annuity portfolio. We accomplish this by extending the Poisson log-bilinear regression developed by Brouhns et al. (2002) with a regime-switching model. Estimation results show that French mortality is characterized by two distinct regimes. One refers to a strong uncertainty state, which corresponds to the longevity conditions observed during the decade following World War II. The second regime is related to the low volatility of longevity improvements observed during the last 30 years. We use these results to analyze the impact of mortality regimes on the longevity risk management of a life annuity portfolio. Simulation results suggest that the changes of trends in the mortality process have some implications for longevity risk management.

Date: 2015
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DOI: 10.1080/03461238.2014.882860

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