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A dynamic equivalence principle for systematic longevity risk management

Author

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  • Hanbali, Hamza
  • Denuit, Michel
  • Dhaene, Jan
  • Trufin, Julien

Abstract

This paper addresses systematic longevity risk in long-term insurance business. We analyze the consequences of working under unknown survival probabilities on the efficiency of the Law of Large Numbers and point out the need for appropriate and feasible risk management techniques. We propose a setting for risk sharing schemes between the insurer and policyholders via a dynamic equivalence principle. We focus on a pure endowment contract and derive conditions for a viable risk sharing scheme which enhances the solvency situation of the insurer while being more favorably priced for the policyholders.
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Suggested Citation

  • Hanbali, Hamza & Denuit, Michel & Dhaene, Jan & Trufin, Julien, 2019. "A dynamic equivalence principle for systematic longevity risk management," LIDAM Reprints ISBA 2019009, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvar:2019009
    Note: In : Insurance: Mathematics and Economics, vol. 86, p. 158-167 (2019)
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    Cited by:

    1. Blake, David & Cairns, Andrew J.G., 2021. "Longevity risk and capital markets: The 2019-20 update," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 395-439.
    2. Hanbali, Hamza, 2025. "Mean-variance longevity risk-sharing for annuity contracts," Insurance: Mathematics and Economics, Elsevier, vol. 120(C), pages 207-235.
    3. Annamaria Olivieri, 2021. "Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario," Risks, MDPI, vol. 9(11), pages 1-18, October.
    4. Emily Bianchessi & Gian Paolo Clemente & Francesco Della Corte & Nino Savelli, 2025. "Effects of Traditional Reinsurance on Demographic Risk Under the Solvency II Framework," Risks, MDPI, vol. 13(10), pages 1-32, October.
    5. Chen, An & Hieber, Peter & Rach, Manuel, 2021. "Optimal retirement products under subjective mortality beliefs," Insurance: Mathematics and Economics, Elsevier, vol. 101(PA), pages 55-69.

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