IDEAS home Printed from https://ideas.repec.org/a/taf/sactxx/v2016y2016i10p876-904.html
   My bibliography  Save this article

Reserves and cash flows under stochastic retirement

Author

Listed:
  • Kamille Sofie TÅgholt Gad
  • Jeppe Woetmann Nielsen

Abstract

Uncertain time of retirement and uncertain structure of retirement benefits are risk factors for life insurance companies. Nevertheless, classical life insurance models assume these are deterministic. In this paper, we include the risk from stochastic time of retirement and stochastic benefit structure in a classical finite-state Markov model for a life insurance contract. We include discontinuities in the distribution of the retirement time. First, we derive formulas for appropriate scaling of the benefits according to the time of retirement and discuss the link between the scaling and the guarantees provided. Stochastic retirement creates a need to rethink the construction of disability products for high ages and ways to handle this are discussed. We show how to calculate market reserves and how to use modified transition probabilities to calculate expected cash flows without significantly more complexity than in the traditional model. At last, we demonstrate the impact of stochastic retirement on market reserves and expected cash flow in numerical examples.

Suggested Citation

  • Kamille Sofie TÅgholt Gad & Jeppe Woetmann Nielsen, 2016. "Reserves and cash flows under stochastic retirement," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2016(10), pages 876-904, November.
    • Handle: RePEc:taf:sactxx:v:2016:y:2016:i:10:p:876-904
    DOI: 10.1080/03461238.2015.1028432
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/03461238.2015.1028432
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/03461238.2015.1028432?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmad, Jamaal & Bladt, Mogens & Furrer, Christian, 2023. "Aggregate Markov models in life insurance: Properties and valuation," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 50-69.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:sactxx:v:2016:y:2016:i:10:p:876-904. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/sact .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.