Stochastic Mortality, Macroeconomic Risks, and Life Insurer Solvency

Hanewald, Katja; Post, Thomas; Gründl, Helmut

doi:10.2139/ssrn.1342609

Cited by 7 publications

(6 citation statements)

References 50 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Cox and Lin () as well as Bayraktar and Young () examine the impact of natural hedging on pricing. Gründl, Post, and Schulze () and Hanewald, Post, and Gründl () compare the effects of different risk management strategies on shareholder value, concluding that natural hedging is the preferred risk management tool, but only under certain circumstances. Wang et al () apply the concept of duration to mortality and derive an optimal liability mix, which is characterized by a portfolio mortality duration of zero, while Wetzel and Zwiesler () show that the mortality variance, i.e., the variance due to fluctuations in mortality, can be reduced by more than 99 percent through portfolio composition.…”

Section: Introductionmentioning

confidence: 99%

Mortality Risk and Its Effect on Shortfall and Risk Management in Life Insurance

Gatzert

Wesker

2013

J of Risk & Insurance

View full text Add to dashboard Cite

Mortality risk is a key risk factor for life insurance companies and can have a crucial impact on its risk situation. In general, mortality risk can be divided into different subcategories, among them unsystematic risk, adverse selection, and systematic risk. In addition, basis risk may arise in case of hedging, for example, longevity risk. The aim of this article is to holistically analyze the impact of these different types of mortality risk on the risk situation and the risk management of a life insurer. Toward this end, we extend previous models of adverse selection, empirically calibrate mortality rates, and study the interaction among the mortality risk components in the case of an insurer holding a portfolio of annuities and term life insurance contracts. For risk management, we examine natural hedging and mortality contingent bonds. Our results show that particularly adverse selection and basis risk can have crucial impact not only on the effectiveness of mortality contingent bonds, but also on the insurer's risk level, especially when a portfolio consists of several types of products.Recently, there has been a growing interest in mortality risk and its management in the scientific literature as well as in practice, especially due to the demographic development in most industrialized countries. The increasing life expectancy poses serious problems to life insurance companies selling annuities and to pension funds. These problems are especially severe because of a scarcity of possibilities to hedge against this risk. Due to the limited capacity of reinsurance, several alternative instruments for managing demographic risk, for example, by transferring mortality risk to the capital market or the use of natural hedging, have been discussed in the scientific literature and by practitioners. However, mortality heterogeneity as well as information asymmetries between the insurance company and the insured about these The authors are with the Friedrich-Alexander-University (FAU) of Erlangen-Nuremberg, Germany. The authors can be contacted via

show abstract

Section: Introductionmentioning

confidence: 99%

Mortality Risk and Its Effect on Shortfall and Risk Management in Life Insurance

Gatzert

Wesker

2013

J of Risk & Insurance

View full text Add to dashboard Cite

show abstract

“…GDP: GDP is another variable commonly used in many studies. GDP is the main measure of the growth of any economy, and is critical for confidence in every business environment, including insurance (Gaganis et al 2019;van der Veer 2019;Caporale et al 2019;Shim 2017;Hanewald et al 2011). High GDP should increase consumer demand for goods and services (Demetriades and Hook Law 2006).…”

Section: Gdp Growthmentioning

confidence: 99%

Solvency determinants: evidence from the Takaful insurance industry

Alokla

Daynes

Pagas

et al. 2022

Geneva Pap Risk Insur Issues Pract

View full text Add to dashboard Cite

This paper contributes to the nascent literature on Takaful by investigating the solvency determinants for Takaful firms in both the Gulf Cooperation Council (GCC) and Malaysian economies. Our main objective is to develop a deeper understanding of the solvency determinants of these firms. Using hand-collected microdata for the period 2011 to 2016 for 52 Takaful firms, we document that firm size and wakalah fees significantly decrease solvency. From a regulatory point of view, this finding underscores that the percentage of wakalah fees should be closely monitored. Moreover, we find that other explanatory variables, including return on assets and the risk retention and investment income ratios, are not significantly associated with solvency. Overall, our results remain robust to many different model specifications. Further analysis indicates significant differences between the GCC and Malaysian Takaful firms. This may be explained by the different stages of financial development in the two markets.

show abstract

“…Our analyses include a separate assessment of male and female death rates, as well as of the whole population without gender differentiation. By doing so, we choose the widely adopted method (Hanewald et al, 2011;Booth and Tickle, 2008) of Lee and Miller (2001) who adjust the original Lee -Carter model in three ways. First, concerning the fitting horizon, the latter half of the last century is chosen with the goal of reducing structural shifts.…”

Section: Forecasting Future Mortality Rates With the Lee-carter Modelmentioning

confidence: 99%

The pricing of hedging longevity risk with the help of annuity securitizations

Lorson

Wagner

2014

The Journal of Risk Finance

View full text Add to dashboard Cite

Prolongation of life expectancy implies a severe risk for annuity providers. Insurance companies can use securitization transactions to address this longevity risk in their portfolios. Securitization can serve as a substitute for classic reinsurance since it also transfers risk to third parties. We develop a model to hedge annuity portfolios against increases in life expectancy. By doing so, we forecast future mortality rates with the Lee-Carter-model and use the Wang-transformation to incorporate insurance risk. Based on the percentile tranching method, where individual tranches are aligned to Standard & Poor's ratings, we price an inverse survivor bond. This bond offers fix coupon payments to investors while the principal payments are at risk and depend on the survival rate within the underlying portfolio. Finally, we apply this securitization structure to calculate the securitization prices for a sample portfolio from a large life insurance company.

show abstract

Stochastic Mortality, Macroeconomic Risks, and Life Insurer Solvency

Cited by 7 publications

References 50 publications

Mortality Risk and Its Effect on Shortfall and Risk Management in Life Insurance

Mortality Risk and Its Effect on Shortfall and Risk Management in Life Insurance

Solvency determinants: evidence from the Takaful insurance industry

The pricing of hedging longevity risk with the help of annuity securitizations

Contact Info

Product

Resources

About