Modelling and Managing Mortality and Longevity Risks
Kai Kaufhold
Low Interest Rate Environments and Consequences
Risks Faced by Writers of Investment Guarantees
Variable Annuity in Asia post-2008
How did Variable Annuities Fare in the Crisis?
Traditional Life Insurance Products are Under Pressure
An Overview of Regulatory Requirements
Simulations
Economic Scenario Generators and Variable Annuities
Modelling and Managing Policyholder Behavioural Risks
Modelling and Managing Mortality and Longevity Risks
Valuation of Variable Annuity Guarantees
Understanding and Using Reinsurance Treaties for Guaranteed Products
Hedging of Long-term Fund-linked Exotic Options
Overview of Commonly Used Risk Management Strategies
Taxonomy of Equity, Interest Rate, Hybrid and Customised Derivatives Used for Risk Management
Managing Risks Underlying Variable Annuity Liabilities
Basis Risk
Measuring Hedge Effectiveness
Measuring and Reporting Hedge Efficiency
Eight Important Questions Practitioners Should Ask When Managing Equity-linked Insurance Guarantee Risks
Mortality or longevity risk is what makes a life insurance product insurance. Whether the transfer of longevity risk from an individual to an insurance company in the form of an annuity or the guaranteed annuitisation of a savings product, or whether the insurance company offers a minimum guaranteed death benefit, mortality risk is involved. Since it is an inherent part of the value proposition of the insurance company, the provider must be able to measure mortality risk and manage it. Traditionally, insurance companies have managed mortality and longevity risk by charging a premium with sufficient margins, holding prudent reserves and capital against the risk, and trusting in the law of large numbers.11Milevsky et al (2006). In a new era of modern accounting and regulatory frameworks, this can no longer be viewed as sufficient, especially when it comes to non-traditional products where the exposure to mortality risk may be contingent upon the performance of certain financial assets.
In this chapter, we will investigate how to create portfolio-specific mortality tables, how to model mortality trends and how to manage the risk associated with mortality or longevity by means of
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