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Longevity Risk Measurement of Life Annuity Products

Author

Listed:
  • Pauline Milaure Ngugnie Diffouo

    (Institute of Statistics, Biostatistics and Actuarial Sciences, Université Catholique de Louvain, 1348 Louvain-La-Neuve, Belgium)

  • Pierre Devolder

    (Institute of Statistics, Biostatistics and Actuarial Sciences, Université Catholique de Louvain, 1348 Louvain-La-Neuve, Belgium)

Abstract

This paper captures and measures the longevity risk generated by an annuity product. The longevity risk is materialized by the uncertain level of the future liability compared to the initially foretasted or expected value. Herein we compute the solvency capital (SC) of an insurer selling such a product within a single risk setting for three different life annuity products. Within the Solvency II framework, we capture the mortality of policyholders by the mean of the Hull–White model. Using the numerical analysis, we identify the product that requires the most SC from an insurer and the most profitable product for a shareholder. For policyholders we identify the cheapest product by computing the premiums and the most profitable product by computing the benefit levels. We further study how sensitive the SC is with respect to some significant parameters.

Suggested Citation

  • Pauline Milaure Ngugnie Diffouo & Pierre Devolder, 2020. "Longevity Risk Measurement of Life Annuity Products," Risks, MDPI, vol. 8(1), pages 1-16, March.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:1:p:31-:d:334028
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    References listed on IDEAS

    as
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