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Different Shades of Risk: Mortality Trends Implied by Term Insurance Prices

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  • Qiheng Guo
  • Daniel Bauer

Abstract

To infer forward-looking, market-based mortality trends, we estimate a flexible affine stochastic mortality model based on a set of U.S. term life insurance prices using a generalized method of moments approach. We find that neither mortality shocks nor stochasticity in the aggregate trend seem to affect the prices. In contrast, allowing for heterogeneity in the mortality rates across carriers is crucial. We conclude that for life insurance, rather than aggregate mortality risk, the key risks emanate from the composition of the portfolio of policyholders. These findings have consequences for mortality risk management and emphasize important directions for mortality-related actuarial research.

Suggested Citation

  • Qiheng Guo & Daniel Bauer, 2021. "Different Shades of Risk: Mortality Trends Implied by Term Insurance Prices," North American Actuarial Journal, Taylor & Francis Journals, vol. 25(S1), pages 156-169, February.
    • Handle: RePEc:taf:uaajxx:v:25:y:2021:i:s1:p:s156-s169
    DOI: 10.1080/10920277.2019.1651656
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    Cited by:

    1. Blake, David & Cairns, Andrew J.G., 2021. "Longevity risk and capital markets: The 2019-20 update," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 395-439.

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