All UK insurers exposed to longevity risk need to perform stress tests for their Individual Capital Assessment (ICA). Some have put in place deterministic models which are arguably too simple; others have developed stochastic models that can be demanding and complex.This paper presents a simple model to turn any deterministic mortality scenario into a stochastic model. We propose a simple model of stochastic variation that is easy to explain and to implement, which could be an alternative to and/or complete some of the well known models. The model can be applied to any best estimates of future mortality rates, as it aims to describe how longevity behaves around the projected expected values.The paper proposes a possible calibration on the England and Wales population mortality that produces a minimum indication of possible future variation and uses the results to validate the model's assumptions. Using sample portfolios and the stochastic model, we can simulate cash flows to determine the distribution of the net present values (NPV) of annuity outgo.
In this paper, we project future mortality rates for actuarial use with Chinese data using a modified Continuous Mortality Investigation (CMI) Mortality Projections Model. The model adopts a convergence structure from “initial” to “long-term” rates of mortality improvement as the process of projection. The initial rates of mortality improvement are derived using two-dimensional P-spline methodology. Given the short history of Chinese data, the long-term rates of mortality improvement are determined by borrowing information from international experience. K-means clustering with dynamic time warping distance is used to classify populations, which is novel in the actuarial mortality research field. The original CMI approach is deterministic, however, in this paper we make it stochastic using techniques outlined by Koller and described by Browne et al. Comparing our results with a pure extrapolative approach, we find that the CMI Mortality Projections Model is more suitable for long-term projections for China.
The focus of the paper is non-profit lifetime annuities in the UK. Annuity insurers have been faced with, or have initiated, an unprecedented amount of change during the last decade, and rapid change is still continuing. We draw out implications for the actuarial management of the business, arising from the evolution of: longevity risk assessment and management, investment strategy and operations, financial reporting, and enterprise risk management. We discuss Solvency II in some technical depth, analysing the proposed rules for technical provisions and solvency capital requirement.
Catastrophic mortality events are characterized by a sudden and concentrated increase in mortality and as such present a major risk to life insurers. Such events include pandemics, war, natural disasters, terrorist attacks, and industrial, transport, and other accidents. Of these, pandemics arising from influenza are considered the most significant threat to the life insurance industry due to their capacity to cause a major increase in claims. We review the features and mortality implications of an influenza pandemic for life insurers, and describe a range of other risks that are likely to emerge as well.
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