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The impact of mortality shocks on modelling and insurance valuation as exemplified by COVID-19

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  • Schnürch, Simon
  • Kleinow, Torsten
  • Korn, Ralf
  • Wagner, Andreas

Abstract

The COVID-19 pandemic interrupts the relatively steady trend of improving longevity observed in many countries over the last decades. We claim that this needs to be addressed explicitly in many mortality modelling applications, for example, in the life insurance industry. To support this position, we provide a descriptive analysis of the mortality development of several countries up to and including the year 2020. Furthermore, we perform an empirical and theoretical investigation of the impact a mortality jump has on the parameters, forecasts and implied present values of the popular Lee–Carter mortality model. We find that COVID-19 has resulted in substantial mortality shocks in many countries. We show that such shocks have a large impact on point and interval forecasts of death rates and, consequently, on the valuation of mortality-related insurance products. We obtain similar findings under the Cairns–Blake–Dowd mortality model, which demonstrates that the effects caused by COVID-19 show up in a variety of models. Finally, we provide an overview of approaches to handle extreme mortality events such as the COVID-19 pandemic in mortality modelling.

Suggested Citation

  • Schnürch, Simon & Kleinow, Torsten & Korn, Ralf & Wagner, Andreas, 2022. "The impact of mortality shocks on modelling and insurance valuation as exemplified by COVID-19," Annals of Actuarial Science, Cambridge University Press, vol. 16(3), pages 498-526, November.
  • Handle: RePEc:cup:anacsi:v:16:y:2022:i:3:p:498-526_6
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    Cited by:

    1. Maria Francesca Carfora & Albina Orlando, 2023. "A Preliminary Investigation of a Single Shock Impact on Italian Mortality Rates Using STMF Data: A Case Study of COVID-19," Data, MDPI, vol. 8(6), pages 1-12, June.
    2. Josep Lledó & Jose M. Pavía & Jorge Sánchez Salas, 2023. "An alternative approach to manage mortality catastrophe risks under Solvency II," Risk Management, Palgrave Macmillan, vol. 25(3), pages 1-22, September.
    3. Camille Delbrouck & Jennifer Alonso-García, 2024. "COVID-19 and Excess Mortality: An Actuarial Study," Risks, MDPI, vol. 12(4), pages 1-27, March.

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