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A unisex stochastic mortality model to comply with EU Gender Directive

Author

Listed:
  • An Chen
  • Elena Vigna

Abstract

EU Gender Directive ruled out discrimination against gender in charging premium for insurance products. This prohibition prevents the use of the standard actuarial fairness principle to price life insurance products, with an evident negative effect on pricing efficiency. According to current actuarial practice, unisex premiums are calculated with a simple weighting rule of the gender-specific life tables. Up to our knowledge, there seems to be neither unisex fairness principle in the actuarial literature, nor unisex mortality model. This paper is the first attempt to fill this gap. First, we introduce a unisex fairness principle and the corresponding unisex fair premium. Then, we provide a unisex stochastic mortality model for the mortality intensity that is underlying the pricing of a life portfolio of females and males belonging to the same cohort. Finally, we calibrate the unisex mortality model using the unisex fairness principle. We find that the weighting coefficient between the males' and fem ales' own mortalities depends mainly on the quote of portfolio relative to each gender, on the age, and on the type of insurance product. We also investigate the impact of the correlation among the two mortality intensities on the weighting coefficient. The knowledge and the adoption of a proper unisex mortality model should help life insurance companies in many tasks, including pricing, reserving, profit testing, calculation of solvency capital requirements and, ultimately, should result in improved competitiveness.

Suggested Citation

  • An Chen & Elena Vigna, 2015. "A unisex stochastic mortality model to comply with EU Gender Directive," Carlo Alberto Notebooks 440, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:440
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    References listed on IDEAS

    as
    1. LUCIANO, Elisa & VIGNA, Elena, 2008. "Mortality risk via affine stochastic intensities: calibration and empirical relevance," MPRA Paper 59627, University Library of Munich, Germany.
    2. Hato Schmeiser & Tina Störmer & Joël Wagner, 2014. "Unisex Insurance Pricing: Consumers’ Perception and Market Implications," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(2), pages 322-350, April.
    3. Yves Thiery & Caroline Van Schoubroeck, 2006. "Fairness and Equality in Insurance Classification*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 31(2), pages 190-211, April.
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    5. Elisa Luciano & Luca Regis & Elena Vigna, 2017. "Single- and Cross-Generation Natural Hedging of Longevity and Financial Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(3), pages 961-986, September.
    6. Biffis, Enrico, 2005. "Affine processes for dynamic mortality and actuarial valuations," Insurance: Mathematics and Economics, Elsevier, vol. 37(3), pages 443-468, December.
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    9. Luciano, Elisa & Regis, Luca & Vigna, Elena, 2012. "Delta–Gamma hedging of mortality and interest rate risk," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 402-412.
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    More about this item

    Keywords

    Actuarial fairness; unisex tariff; stochastic mortality intensity; Gender Directive; life table; doubly stochastic process.;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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