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GEOGRAPHICAL DIVERSIFICATION AND LONGEVITY RISK MITIGATION IN ANNUITY PORTFOLIOS

Published online by Cambridge University Press:  28 April 2021

Clemente De Rosa
Affiliation:
Scuola Normale Superiore Piazza dei Cavalieri 7 56126Pisa, Italy E-Mail: [email protected]
Elisa Luciano
Affiliation:
ESOMAS Department University of Torino, Collegio Carlo Alberto and Institut Louis Bachelier Corso Unione Sovietica 218/bis 10134, Torino, Italy E-Mail: [email protected]
Luca Regis*
Affiliation:
ESOMAS Department University of Torino and Collegio Carlo Alberto Corso Unione Sovietica 218/bis 10134, Torino, Italy E-Mail: [email protected]
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Abstract

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This paper provides a method to assess the risk relief deriving from a foreign expansion by a life insurance company. We build a parsimonious continuous-time model for longevity risk that captures the dependence across different ages in domestic versus foreign populations. We calibrate the model to portray the case of a UK annuity portfolio expanding internationally toward Italian policyholders. The longevity risk diversification benefits of an international expansion are sizable, in particular when interest rates are low. The benefits are judged based on traditional measures, such as the Risk Margin or volatility reduction, and on a novel measure, the Diversification Index.

Type
Research Article
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Copyright
© 2021 by Astin Bulletin. All rights reserved

Footnotes

*

The authors thank the Global Risk Institute (Toronto) for financial support and its workshop participants in January 2017 for helpful suggestions. They thank participants and discussants in the 9th Financial Risk International Forum (Paris, March 2016), the 15th International Conference on Pensions, Insurance and Savings (Paris, May 2017), the Workshop on “Recent Developments in Dependence Modelling with Applications in Finance and Insurance” (Aegina, September 2018) as well as participants to the University of Florence inaugural Master lecture in October 2017, and the University of Verona day in honor of F. Rossi, for useful discussions and remarks. Financial support from the Italian Ministry of Education, University and Research (MIUR), “Dipartimenti di Eccellenza” grant 2018–2022 is gratefully acknowledged.

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