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Managing longevity and disability risks in life annuities with long term care

Author

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  • Levantesi, Susanna
  • Menzietti, Massimiliano

Abstract

The aim of the paper is twofold. Firstly, it develops a model for risk assessment in a portfolio of life annuities with long term care benefits. These products are usually represented by a Markovian Multi-State model and are affected by both longevity and disability risks. Here, a stochastic projection model is proposed in order to represent the future evolution of mortality and disability transition intensities. Data from the Italian National Institute of Social Security (INPS) and from Human Mortality Database (HMD) are used to estimate the model parameters. Secondly, it investigates the solvency in a portfolio of enhanced pensions. To this aim a risk model based on the portfolio risk reserve is proposed and different rules to calculate solvency capital requirements for life underwriting risk are examined. Such rules are then compared with the standard formula proposed by the Solvency II project.

Suggested Citation

  • Levantesi, Susanna & Menzietti, Massimiliano, 2012. "Managing longevity and disability risks in life annuities with long term care," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 391-401.
  • Handle: RePEc:eee:insuma:v:50:y:2012:i:3:p:391-401
    DOI: 10.1016/j.insmatheco.2012.01.004
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    References listed on IDEAS

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    1. Gaetan Lafortune & Gaëlle Balestat, 2007. "Trends in Severe Disability Among Elderly People: Assessing the Evidence in 12 OECD Countries and the Future Implications," OECD Health Working Papers 26, OECD Publishing.
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    6. Olivieri, Annamaria & Pitacco, Ermanno, 2003. "Solvency requirements for pension annuities," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(02), pages 127-157, July.
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    Citations

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    Cited by:

    1. Tomas, Julien & Planchet, Frédéric, 2013. "Multidimensional smoothing by adaptive local kernel-weighted log-likelihood: Application to long-term care insurance," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 573-589.
    2. Djehiche, Boualem & Löfdahl, Björn, 2014. "Risk aggregation and stochastic claims reserving in disability insurance," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 100-108.
    3. Boumezoued, Alexandre & Karoui, Nicole El & Loisel, Stéphane, 2017. "Measuring mortality heterogeneity with multi-state models and interval-censored data," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 67-82.

    More about this item

    Keywords

    Markovian multi-state model; Longevity risk; Disability risk; Solvency II; Internal models;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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