Longevity Risk Measurement of Life Annuity Products

Pauline Ngugnie Diffouo () and Pierre Devolder ()
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Pauline Ngugnie Diffouo: Université catholique de Louvain, LIDAM/ISBA, Belgium
Pierre Devolder: Université catholique de Louvain, LIDAM/ISBA, Belgium

No 2020017, LIDAM Reprints ISBA from Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA)

Abstract: This paper captures and measures the longevity risk generated by an annuity product. The longevity risk is materialized by the uncertain level of the future liability compared to the initially foretasted or expected value. Herein we compute the solvency capital (SC) of an insurer selling such a product within a single risk setting for three different life annuity products. Within the Solvency II framework, we capture the mortality of policyholders by the mean of the Hull–White model. Using the numerical analysis, we identify the product that requires the most SC from an insurer and the most profitable product for a shareholder. For policyholders we identify the cheapest product by computing the premiums and the most profitable product by computing the benefit levels. We further study how sensitive the SC is with respect to some significant parameters.

Keywords: solvency capital; life annuity; longevity risk; risk measurement (search for similar items in EconPapers)
Date: 2020-03-18
Note: In: Risks - Vol. 8, no.1, p. 31 (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:aiz:louvar:2020017

DOI: 10.3390/risks8010031

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