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One-year Value-at-Risk for longevity and mortality

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  • Plat, Richard
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    Abstract

    Upcoming new regulation on regulatory required solvency capital for insurers will be predominantly based on a one-year Value-at-Risk measure. This measure aims at covering the risk of the variation in the projection year as well as the risk of changes in the best estimate projection for future years. This paper addresses the issue how to determine this Value-at-Risk for longevity and mortality risk. Naturally, this requires stochastic mortality rates. In the past decennium, a vast literature on stochastic mortality models has been developed. However, very few of them are suitable for determining the one-year Value-at-Risk. This requires a model for mortality trends instead of mortality rates. Therefore, we will introduce a stochastic mortality trend model that fits this purpose. The model is transparent, easy to interpret and based on well known concepts in stochastic mortality modeling. Additionally, we introduce an approximation method based on duration and convexity concepts to apply the stochastic mortality rates to specific insurance portfolios.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167668711000795
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    Bibliographic Info

    Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

    Volume (Year): 49 (2011)
    Issue (Month): 3 ()
    Pages: 462-470

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    Handle: RePEc:eee:insuma:v:49:y:2011:i:3:p:462-470

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    Web page: http://www.elsevier.com/locate/inca/505554

    Related research

    Keywords: One-year Value-at-Risk; Stochastic mortality trend model; Solvency 2;

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    Cited by:
    1. Lin, Tzuling & Tsai, Cary Chi-Liang, 2013. "On the mortality/longevity risk hedging with mortality immunization," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 580-596.

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