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MODELING THE MORTALITY TREND UNDER MODERN SOLVENCY REGIMES

Published online by Cambridge University Press:  10 October 2013

Matthias Börger ,
Daniel Fleischer  and
Nikita Kuksin
Matthias Börger*
Affiliation:
Institute of Insurance, Ulm University & Institute for Finance and Actuarial Sciences (ifa), Ulm Helmholtzstraße 22, 89081 Ulm, Germany Phone: +49 731 50 31257, Fax: +49 731 50 31239
Daniel Fleischer
Affiliation:
Swiss Reinsurance Company Ltd Mythenquai 50/60, 8022 Zurich, Switzerland
Nikita Kuksin
Affiliation:
Swiss Reinsurance Company Ltd Mythenquai 50/60, 8022 Zurich, Switzerland
*
E-Mail: [email protected]
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Abstract

Stochastic modeling of mortality/longevity risks is necessary for internal models of (re)insurers under the new solvency regimes, such as Solvency II and the Swiss Solvency Test. In this paper, we propose a mortality model which fulfills all requirements imposed by these regimes. We show how the model can be calibrated and applied to the simultaneous modeling of both mortality and longevity risk for several populations. The main contribution of this paper is a stochastic trend component which explicitly models changes in the long-term mortality trend assumption over time. This allows to quantify mortality and longevity risk over the one-year time horizon prescribed by the solvency regimes without relying on nested simulations. We illustrate the practical ability of our model by calculating solvency capital requirements for some example portfolios, and we compare these capital requirements with those from the Solvency II standard formula.

Keywords

Stochastic mortalitymortality trend risklongevity risksolvencyone-year view
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 1 , January 2014 , pp. 1 - 38
Copyright
Copyright © ASTIN Bulletin 2013 

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