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Longevity Risk

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  • Anja De Waegenaere
  • Bertrand Melenberg
  • Ralph Stevens

Abstract

Most of the western world has seen a steady increase in the average lifetime of its inhabitants over the past century. Although the past trends suggest that further changes in mortality rates are to be expected, considerable uncertainty exists regarding the future development of mortality. This type of uncertainty is referred to as longevity risk. This paper reviews the current state of the literature concerning longevity risk. First, we discuss the modeling of future mortality, including the Lee and Carter (J Am Stat Assoc 87:659–671, 1992)-approach, as well as other approaches. Second we discuss the importance of longevity risk for the solvency of portfolios of pension and life insurance products. Finally, we investigate possibilities for longevity risk management. In particular, we consider longevity risk management through securitization and/or pension and insurance (re)design.
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Suggested Citation

  • Anja De Waegenaere & Bertrand Melenberg & Ralph Stevens, 2010. "Longevity Risk," De Economist, Springer, vol. 158(2), pages 151-192, June.
    • Handle: RePEc:kap:decono:v:158:y:2010:i:2:p:151-192
    DOI: 10.1007/s10645-010-9143-4
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    Cited by:

    1. van Gulick, Gerwald & De Waegenaere, Anja & Norde, Henk, 2012. "Excess based allocation of risk capital," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 26-42.
    2. Elisa Luciano & Luca Regis & Elena Vigna, 2017. "Single- and Cross-Generation Natural Hedging of Longevity and Financial Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(3), pages 961-986, September.
    3. van Baal, Pieter H. & Wong, Albert, 2012. "Time to death and the forecasting of macro-level health care expenditures: Some further considerations," Journal of Health Economics, Elsevier, vol. 31(6), pages 876-887.
    4. Chao Qiao & Michael Sherris, 2011. "Managing Systematic Mortality Risk with Group Self Pooling and Annuitisation Schemes," Working Papers 201104, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    5. Ben Heijdra & Jochen Mierau, 2011. "The Individual Life Cycle and Economic Growth: An Essay on Demographic Macroeconomics," De Economist, Springer, vol. 159(1), pages 63-87, March.
    6. Enrico Biffis & David Blake & Lorenzo Pitotti & Ariel Sun, 2016. "The Cost of Counterparty Risk and Collateralization in Longevity Swaps," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 387-419, June.
    7. Hanewald, Katja & Piggott, John & Sherris, Michael, 2013. "Individual post-retirement longevity risk management under systematic mortality risk," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 87-97.
    8. Boonen, T.J. & De Waegenaere, A.M.B. & Norde, H.W., 2012. "Bargaining for Over-The Counter Risk Redistributions : The Case of Longevity Risk," Discussion Paper 2012-090, Tilburg University, Center for Economic Research.
    9. F. Peters & J. P. Mackenbach & W. J. Nusselder, 2016. "Does the Impact of the Tobacco Epidemic Explain Structural Changes in the Decline of Mortality?," European Journal of Population, Springer;European Association for Population Studies, vol. 32(5), pages 687-702, December.
    10. Istvan Majer & Ralph Stevens & Wilma Nusselder & Johan Mackenbach & Pieter Baal, 2013. "Modeling and Forecasting Health Expectancy: Theoretical Framework and Application," Demography, Springer;Population Association of America (PAA), vol. 50(2), pages 673-697, April.

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