Stochastic mortality, macroeconomic risks, and life insurer solvency

Katja Hanewald, Thomas Post and Helmut Gründl

No 2009-015, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

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

Keywords: Life insurance; asset-liability management; stochastic mortality; Lee-Carter model; business cycle (search for similar items in EconPapers)
JEL-codes: E32 G22 G23 G28 G32 J11 (search for similar items in EconPapers)
Date: 2009
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Related works:
Journal Article: Stochastic Mortality, Macroeconomic Risks and Life Insurer Solvency (2011)
Working Paper: Stochastic mortality, macroeconomic risks, and life insurer solvency (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2009-015

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