<scp>Securitization of Mortality Risks in Life Annuities</scp>

Lin, Yijia; Cox, Samuel H.

doi:10.1111/j.1539-6975.2005.00122.x

Cited by 275 publications

(159 citation statements)

References 11 publications

(14 reference statements)

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“…Thus, it is a natural idea to use life insurance prices to derive a risk adjusted parametrization for the mortality intensity process. Similar ideas have been proposed for pricing longevity bonds (see Lin and Cox (2005)) and classical catastrophe derivatives (see Muermann (2003)). As pointed out by Bauer and Russ (2006), some conditions need to be satisfied regarding insurance prices and the insurance market in order to derive the risk premium for systematic mortality risk from insurance prices.…”

Section: Risk-adjusted Calibration Based On Insurance Pricesmentioning

confidence: 73%

Risk and Valuation of Mortality Contingent Catastrophe Bonds

Bauer

Kramer²

2012

SSRN Journal

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Catastrophe Mortality Bonds are a recent capital market innovation providing insurers and reinsurers with the possibility to transfer catastrophe mortality risk off their balance sheets to capital markets.This article introduces a time-continuous model for analyzing and pricing catastrophe mortality contingent claims based on stochastic modeling of the force of mortality. In addition, we give an concise survey of past transactions and explain in detail the structure of the deals and the securities.Parametrizations of the proposed model based on three different calibration procedures are derived. The resulting loss profiles and prices are compared to loss profiles provided by the issuers and to market prices, respectively. We find that the profiles are subject to great uncertainties and should hence be considered with care by investors and rating agencies. Furthermore, by comparing outcomes of risk-adjusted parametrizations based on insurance quotes and parametrizations implied by market prices, we are able to give a possible explanation for the relatively fast growth of the market for Catastrophe Mortality Bonds over the last years.

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Section: Risk-adjusted Calibration Based On Insurance Pricesmentioning

confidence: 73%

Risk and Valuation of Mortality Contingent Catastrophe Bonds

Bauer

Kramer²

2012

SSRN Journal

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“…Mortality has been declining steadily over time, although not uniformly across different age ranges, as suggested by Renshaw, Haberman, and Hatzoupoulos (1996). Lin and Cox (2005) compute the percentage change in the present values of annuity payments under different simulated mortality shocks. From their numerical application we can see how sensitive securities with longevity risk can be to changes in life expectancies.…”

Section: Resultsmentioning

confidence: 99%

“…Their counterparties must manage this longevity risk. Longevity risk and the introduction of securitization as a mean of shifting/redistributing such risk to different parties are addressed by Lin & Cox (2005). They propose mortality-based securities, such as mortality bonds and develop a model to price the proposed mortality securities.…”

Section: Introductionmentioning

confidence: 99%

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Managing Viagers Securitization and Life Extension Risk

Stone¹,

Zissu²

2007

Asia-Pacific Journal of Risk and Insurance

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It is possible in France to finance the purchase of a property with a viager in lieu of obtaining a traditional mortgage loan, where the purchase price of the property, or balance of the price if a down payment is made (the bouquet), is converted into an annuity that the buyer agrees to pay for the remainder of the seller's life. Insurance companies in France have been significant investors in the viager market for many years. The cash flows generated by pools of viagers can thus mirror those from pools of life insurance policies. We propose in this paper a model that values the possible securitization of viagers and that values life extension risk. The securitization of viagers gives insurance companies an opportunity to create portfolios where mortality risk can be hedged by life extension risk.

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“…The current literature devotes considerable attention to this pricing problem. Specifically, traditional finance approaches (risk-neutral pricing theories, see, for example, Cairns et al 2006a) as well as actuarial pricing approaches (Wang's premium principle, see, for example, Lin and Cox 2005) have received considerable attention. However, market incompleteness implies that calibrating these pricing models remains difficult.…”

Section: (L)/e[l]mentioning

confidence: 99%

Longevity Risk

2010

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SummaryMost of the western world has seen a steady increase in the average lifetime of its inhabitants over the past century. Although the past trends suggest that further changes in mortality rates are to be expected, considerable uncertainty exists regarding the future development of mortality. This type of uncertainty is referred to as longevity risk. This paper reviews the current state of the literature concerning longevity risk. First, we discuss the modeling of future mortality, including the Lee and Carter (J Am Stat Assoc 87:659-671, 1992)-approach, as well as other approaches. Second, we discuss the importance of longevity risk for the solvency of portfolios of pension and life insurance products. Finally, we investigate possibilities for longevity risk management. In particular, we consider longevity risk management through securitization and/or pension and insurance (re)design.

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Securitization of Mortality Risks in Life Annuities

Cited by 275 publications

References 11 publications

Risk and Valuation of Mortality Contingent Catastrophe Bonds

Risk and Valuation of Mortality Contingent Catastrophe Bonds

Managing Viagers Securitization and Life Extension Risk

Longevity Risk

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