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Geographical Diversification And Longevity Risk Mitigation In Annuity Portfolios

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  • De Rosa, Clemente
  • Luciano, Elisa
  • Regis, Luca

Abstract

This paper provides a method to assess the risk relief deriving from a foreign expansion by a life insurance company. We build a parsimonious continuous-time model for longevity risk that captures the dependence across different ages in domestic versus foreign populations. We calibrate the model to portray the case of a UK annuity portfolio expanding internationally toward Italian policyholders. The longevity risk diversification benefits of an international expansion are sizable, in particular when interest rates are low. The benefits are judged based on traditional measures, such as the Risk Margin or volatility reduction, and on a novel measure, the Diversification Index.

Suggested Citation

  • De Rosa, Clemente & Luciano, Elisa & Regis, Luca, 2021. "Geographical Diversification And Longevity Risk Mitigation In Annuity Portfolios," ASTIN Bulletin, Cambridge University Press, vol. 51(2), pages 375-410, May.
    • Handle: RePEc:cup:astinb:v:51:y:2021:i:2:p:375-410_2
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    References listed on IDEAS

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    Cited by:

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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