Forecasting Longevity Gains for a Population with Short Time Series Using a Structural SUTSE Model: An Application to Brazilian Annuity Plans

Essay on Dynamic Modeling in Life Insurance and Private Pension: Longevity, Surrender and Embedded Options

“…To calculate the fair value of this annuity, i.e. with realistic technical bases, we will assume that the mortality rates of retirement plans in Brazil match those found in the BR-EMS 2010 mortality table for survival coverage (Oliveira et al, 2012) and that future longevity gains are obtained according to the model developed in Neves et al (2016) -chapter 3 of this thesis. Additionally, we assume that the real interest rate in the market is 4% p.a.…”

“…To estimate the future longevity gains, we apply the multivariate structural model that uses the seemingly unrelated time series equation (SUTSE) proposed by Neves et al (2016). This model estimates the longevity gains from a population with a short time series of observed mortality rates, which is the case of the Brazilian population.…”

“…The estimation was based on a short-term rate of six months for the IPCA coupon To predict the future longevity gains, we have adopted the multivariate structural model of Neves et al (2016). In this article, the authors estimate the longevity gain from 2010, given that this uses the Brazilian population mortality data until 2009.…”

“…gain factor for age x of the Brazilian population in time rate of mortality for age x for the Brazilian population in timeNeves et al (2016).As in Neves et al(2016), here we assume that the longevity gain distribution of the policyholders of unit-linked plans is equal to that of the Brazilian population. Thus, we take an approximation to achieve the forecast of mortality rates of those policyholders, which also have lognormal distribution, asfollows: of the forecasted central rate of mortality for age x in time s t + ; and t x…”