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Modelling a Dutch Pension Fund’s Capital Requirement for Longevity Risk

Author

Listed:
  • Polman, Fabian M.
  • Krijgsman, Cees
  • Dajani, Karma
  • Hemminga, Marcus A.

Abstract

Longevity risk is the risk arising from uncertainty in the prediction of future mortality. This risk must be faced by pension funds. The legislation for Dutch pension funds prescribes that the pension funds need to keep in reserve a certain level of capital for this risk. De Nederlandsche Bank (DNB), the regulator of the legislation, suggests a method for calculating this capital requirement. In this paper an alternative method is developed, that provides a better insight in the current risk. Moreover, it turns out that the resulting capital requirement from our method is less than half of the capital requirement calculated using the method suggested by DNB.

Suggested Citation

  • Polman, Fabian M. & Krijgsman, Cees & Dajani, Karma & Hemminga, Marcus A., 2017. "Modelling a Dutch Pension Fund’s Capital Requirement for Longevity Risk," MPRA Paper 79438, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79438
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    References listed on IDEAS

    as
    1. Carter, Lawrence R. & Lee, Ronald D., 1992. "Modeling and forecasting US sex differentials in mortality," International Journal of Forecasting, Elsevier, vol. 8(3), pages 393-411, November.
    2. Nan Li & Ronald Lee, 2005. "Coherent mortality forecasts for a group of populations: An extension of the lee-carter method," Demography, Springer;Population Association of America (PAA), vol. 42(3), pages 575-594, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Longevity risk; capital requirement for longevity risk; Dutch pension fund; stochastic mortality; Monte Carlo simulations;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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