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Stochastic mortality, macroeconomic risks, and life insurer solvency

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  • Hanewald, Katja
  • Post, Thomas
  • Gründl, Helmut

Abstract

Motivated by a recent demographic study establishing a link between macroeconomic fluctuations and the mortality index kt in the Lee-Carter model, we assess the impact of macroeconomic fluctuations on the solvency of a life insurance company. Liabilities in our stochastic simulation framework are driven by a GDP-linked variant of the Lee-Carter mortality model. Furthermore, interest rates and stock prices are allowed to react to changes in GDP, which itself is modeled as a stochastic process. Our results show that insolvency probabilities are significantly higher when the reaction of mortality rates to changes in GDP is incorporated.

Suggested Citation

  • Hanewald, Katja & Post, Thomas & Gründl, Helmut, 2009. "Stochastic mortality, macroeconomic risks, and life insurer solvency," SFB 649 Discussion Papers 2009-015, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2009-015
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

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    2. Michał Grajek & Lars-Hendrik Röller, 2012. "Regulation and Investment in Network Industries: Evidence from European Telecoms," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 189-216.
    3. Choroś, Barbara & Härdle, Wolfgang Karl & Okhrin, Ostap, 2009. "CDO and HAC," SFB 649 Discussion Papers 2009-038, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    4. Wang, Pengjie & Pantelous, Athanasios A. & Vahid, Farshid, 2023. "Multi-population mortality projection: The augmented common factor model with structural breaks," International Journal of Forecasting, Elsevier, vol. 39(1), pages 450-469.
    5. repec:hum:wpaper:sfb649dp2009-040 is not listed on IDEAS
    6. Michał Grajek & Lars-Hendrik Röller, 2012. "Regulation and Investment in Network Industries: Evidence from European Telecoms," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 189-216.
    7. Franca Glenzer & Bertrand Achou, 2019. "Annuities, long-term care insurance, and insurer solvency," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(2), pages 252-276, April.
    8. Helena Chuliá & Montserrat Guillén & Jorge M. Uribe, 2015. "Mortality and Longevity Risks in the United Kingdom: Dynamic Factor Models and Copula-Functions," Working Papers 2015-03, Universitat de Barcelona, UB Riskcenter.
    9. repec:hum:wpaper:sfb649dp2009-041 is not listed on IDEAS
    10. Shang, Han Lin & Haberman, Steven, 2017. "Grouped multivariate and functional time series forecasting:An application to annuity pricing," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 166-179.
    11. Grith, Maria & Härdle, Wolfgang Karl & Park, Juhyun, 2009. "Shape invariant modelling pricing kernels and risk aversion," SFB 649 Discussion Papers 2009-041, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    12. Richter, Andreas & Weber, Frederik, 2009. "Mortality-Indexed Annuities," Discussion Papers in Business Administration 10994, University of Munich, Munich School of Management.
    13. repec:hum:wpaper:sfb649dp2009-038 is not listed on IDEAS
    14. Höring, Dirk, 2012. "Will Solvency II market risk requirements bite? The impact of Solvency II on insurers' asset allocation," ICIR Working Paper Series 11/12, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).

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    More about this item

    Keywords

    Life insurance; asset-liability management; stochastic mortality; Lee-Carter model; business cycle;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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