scholarly journals MODELING THE MORTALITY TREND UNDER MODERN SOLVENCY REGIMES

2013 ◽  
Vol 44 (1) ◽  
pp. 1-38 ◽  
Author(s):  
Matthias Börger ◽  
Daniel Fleischer ◽  
Nikita Kuksin
Keyword(s):  
Solvency Ii ◽  
Capital Requirements ◽  
Longevity Risk ◽  
Mortality Trend ◽  
Swiss Solvency Test ◽  
Solvency Capital ◽  
Simultaneous Modeling ◽  
One Year ◽  
The One ◽  
Solvency Regimes

AbstractStochastic modeling of mortality/longevity risks is necessary for internal models of (re)insurers under the new solvency regimes, such as Solvency II and the Swiss Solvency Test. In this paper, we propose a mortality model which fulfills all requirements imposed by these regimes. We show how the model can be calibrated and applied to the simultaneous modeling of both mortality and longevity risk for several populations. The main contribution of this paper is a stochastic trend component which explicitly models changes in the long-term mortality trend assumption over time. This allows to quantify mortality and longevity risk over the one-year time horizon prescribed by the solvency regimes without relying on nested simulations. We illustrate the practical ability of our model by calculating solvency capital requirements for some example portfolios, and we compare these capital requirements with those from the Solvency II standard formula.

scholarly journals Maximum Market Price of Longevity Risk Under Solvency Regimes: The Case Of Solvency II

2017 ◽  
Author(s):  
Susanna Levantesi ◽  
Massimiliano Menzietti
Keyword(s):  
Market Price ◽  
Solvency Ii ◽  
Insurance Companies ◽  
Longevity Risk ◽  
Risk Margin ◽  
Maximum Price ◽  
Upper Limits ◽  
Forward Prices ◽  
Pricing Measure ◽  
Solvency Regimes

Longevity risk constitutes an important risk factor for life insurance companies and it can be managed through longevity-linked securities. The market of longevity-linked securities is at present far from being complete and does not allow to find a unique pricing measure. We propose a method to estimate the maximum market price of longevity risk depending on the risk margin implicit within the calculation of the technical provisions as defined by Solvency II. The maximum price of longevity risk is determined for a survivor forward (S-forward), an agreement between two counterparties to exchange at maturity a fixed survival-dependent payment for a payment depending on the realized survival of a given cohort of individuals. The maximum prices determined for the S-forwards can be used to price other longevity-linked securities, such as q-forwards. The Cairns-Blake-Dowd model is used to represent the evolution of mortality over time, that combined with the information on the risk margin, enables us to calculate upper limits for the risk-adjusted survival probabilities, the market price of longevity risk and the S-forward prices. Numerical results can be extended for the pricing of other longevity-linked securities.

scholarly journals Longevity Risk Measurement of Life Annuity Products

Risks ◽  
2020 ◽  
Vol 8 (1) ◽  
pp. 31
Author(s):  
Pauline Milaure Ngugnie Diffouo ◽  
Pierre Devolder
Keyword(s):  
Numerical Analysis ◽  
Solvency Ii ◽  
Expected Value ◽  
Risk Measurement ◽  
Longevity Risk ◽  
Life Annuity ◽  
The Future ◽  
Solvency Capital ◽  
The Mean

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.

scholarly journals TONUITY: A NOVEL INDIVIDUAL-ORIENTED RETIREMENT PLAN

2018 ◽  
Vol 49 (1) ◽  
pp. 5-30 ◽  
Author(s):  
An Chen ◽  
Peter Hieber ◽  
Jakob K. Klein
Keyword(s):  
Risk Aversion ◽  
Switching Time ◽  
Extreme Case ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
Longevity Risk ◽  
Insurance Company ◽  
Risk Capital ◽  
Medium Risk

AbstractFor insurance companies in Europe, the introduction of Solvency II leads to a tightening of rules for solvency capital provision. In life insurance, this especially affects retirement products that contain a significant portion of longevity risk (e.g., conventional annuities). Insurance companies might react by price increases for those products, and, at the same time, might think of alternatives that shift longevity risk (at least partially) to policyholders. In the extreme case, this leads to so-called tontine products where the insurance company’s role is merely administrative and longevity risk is shared within a pool of policyholders. From the policyholder’s viewpoint, such products are, however, not desirable as they lead to a high uncertainty of retirement income at old ages. In this article, we alternatively suggest a so-called tonuity that combines the appealing features of tontine and conventional annuity. Until some fixed age (the switching time), a tonuity’s payoff is tontine-like, afterwards the policyholder receives a secure payment of a (deferred) annuity. A tonuity is attractive for both the retiree (who benefits from a secure income at old ages) and the insurance company (whose capital requirements are reduced compared to conventional annuities). The tonuity is a possibility to offer tailor-made retirement products: using risk capital charges linked to Solvency II, we show that retirees with very low or very high risk aversion prefer a tontine or conventional annuity, respectively. Retirees with medium risk aversion, however, prefer a tonuity. In a utility-based framework, we therefore determine the optimal tonuity characterized by the critical switching time that maximizes the policyholder’s lifetime utility.

scholarly journals Operational risk quantification and modelling within Romanian insurance industry

2017 ◽  
Vol 11 (1) ◽  
pp. 637-648
Author(s):  
Răzvan Tudor ◽  
Dumitru Badea
Keyword(s):  
Standard Model ◽  
Insurance Industry ◽  
Operational Risk ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Capital Requirement ◽  
Risk Capital ◽  
Operational Risks ◽  
The Standard Model ◽  
Solvency Capital

Abstract This paper aims at covering and describing the shortcomings of various models used to quantify and model the operational risk within insurance industry with a particular focus on Romanian specific regulation: Norm 6/2015 concerning the operational risk issued by IT systems. While most of the local insurers are focusing on implementing the standard model to compute the Operational Risk solvency capital required, the local regulator has issued a local norm that requires to identify and assess the IT based operational risks from an ISO 27001 perspective. The challenges raised by the correlations assumed in the Standard model are substantially increased by this new regulation that requires only the identification and quantification of the IT operational risks. The solvency capital requirement stipulated by the implementation of Solvency II doesn’t recommend a model or formula on how to integrate the newly identified risks in the Operational Risk capital requirements. In this context we are going to assess the academic and practitioner’s understanding in what concerns: The Frequency-Severity approach, Bayesian estimation techniques, Scenario Analysis and Risk Accounting based on risk units, and how they could support the modelling of operational risk that are IT based. Developing an internal model only for the operational risk capital requirement proved to be, so far, costly and not necessarily beneficial for the local insurers. As the IT component will play a key role in the future of the insurance industry, the result of this analysis will provide a specific approach in operational risk modelling that can be implemented in the context of Solvency II, in a particular situation when (internal or external) operational risk databases are scarce or not available.

scholarly journals Pricing of Longevity Derivatives and Cost of Capital

Risks ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 41 ◽  
Author(s):  
Fadoua Zeddouk ◽  
Pierre Devolder
Keyword(s):  
Financial Markets ◽  
Time Horizon ◽  
Cost Of Capital ◽  
Solvency Ii ◽  
Longevity Risk ◽  
Policy Makers ◽  
Academic Researchers ◽  
Belgian Population ◽  
One Year ◽  
Longevity Bonds

Annuities providers become more and more exposed to longevity risk due to the increase in life expectancy. To hedge this risk, new longevity derivatives have been proposed (longevity bonds, q-forwards, S-swaps…). Although academic researchers, policy makers and practitioners have talked about it for years, longevity-linked securities are not widely traded in financial markets, due in particular to the pricing difficulty. In this paper, we compare different existing pricing methods and propose a Cost of Capital approach. Our method is designed to be more consistent with Solvency II requirement (longevity risk assessment is based on a one year time horizon). The price of longevity risk is determined for a S-forward and a S-swap but can be used to price other longevity-linked securities. We also compare this Cost of capital method with some classical pricing approaches. The Hull and White and CIR extended models are used to represent the evolution of mortality over time. We use data for Belgian population to derive prices for the proposed longevity linked securities based on the different methods.

scholarly journals Maximum Market Price of Longevity Risk under Solvency Regimes: The Case of Solvency II

Risks ◽  
2017 ◽  
Vol 5 (2) ◽  
pp. 29 ◽  
Author(s):  
Susanna Levantesi ◽  
Massimiliano Menzietti
Keyword(s):  
Market Price ◽  
Solvency Ii ◽  
Longevity Risk ◽  
Solvency Regimes

scholarly journals On The Longevity Risk Assessment Under Solvency II

2015 ◽  
Vol 31 (3) ◽  
pp. 1149
Author(s):  
Sana Ben Salah ◽  
Lotfi Belkacem
Keyword(s):  
Risk Assessment ◽  
Solvency Ii ◽  
Standard Approach ◽  
Mortality Data ◽  
Longevity Risk ◽  
Capital Requirement ◽  
Insurance Company ◽  
Solvency Capital Requirement ◽  
Standard Formula ◽  
Solvency Capital

<p>This paper deals with the longevity risk assessment within the Solvency II framework. We propose a methodology allowing obtaining longevity shocks specified by gender, age and maturity. These shocks, which are calibrated on experience mortality data relative to a French insurance company, are proved to be far away from that assumed in the standard formula and the resulting solvency capital requirement (SCR) leads to significant capital savings as compared to the standard approach.</p>

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