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Stochastic mortality, macroeconomic risks, and life insurer solvency

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  • Hanewald, Katja
  • Post, Thomas
  • Gründl, Helmut

Abstract

Motivated by a recent demographic study establishing a link between macroeconomic fluctuations and the mortality index kt in the Lee-Carter model, we develop a dynamic asset-liability model to assess the impact of macroeconomic fluctuations on the solvency of a life insurance company. Liabilities in this stochastic simulation framework are driven by a GDP-linked variant of the Lee-Carter mortality model. Furthermore, interest rates and stock prices react to changes in GDP, which itself is modelled as a stochastic process. Our simulation results show that insolvency probabilities are significantly higher when the reaction of mortality rates to changes in GDP is incorporated. --

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Bibliographic Info

Paper provided by International Center for Insurance Regulation (ICIR), Goethe University Frankfurt in its series ICIR Working Paper Series with number 01/11.

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Date of creation: 2011
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Handle: RePEc:zbw:icirwp:0111

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Citations

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Cited by:
  1. Richter, Andreas & Weber, Frederik, 2009. "Mortality-Indexed Annuities," Discussion Papers in Business Administration 10994, University of Munich, Munich School of Management.
  2. Roland Strausz, 2010. "The Political Economy of Regulatory Risk," CESifo Working Paper Series 2953, CESifo Group Munich.
  3. Barbara Choroś & Wolfgang Härdle & Ostap Okhrin, 2009. "CDO and HAC," SFB 649 Discussion Papers SFB649DP2009-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Michał Grajek & Lars-Hendrik Röller, 2009. "Regulation and Investment in Network Industries: Evidence from European Telecoms," SFB 649 Discussion Papers SFB649DP2009-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Höring, Dirk, 2012. "Will Solvency II market risk requirements bite? The impact of Solvency II on insurers' asset allocation," ICIR Working Paper Series 11/12, International Center for Insurance Regulation (ICIR), Goethe University Frankfurt.
  6. Maria Grith & Wolfgang Härdle & Juhyun Park, 2009. "Shape invariant modelling pricing kernels and risk aversion," SFB 649 Discussion Papers SFB649DP2009-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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