Hostname: page-component-78c5997874-t5tsf Total loading time: 0 Render date: 2024-11-09T20:54:32.287Z Has data issue: false hasContentIssue false
  • English
  • Français

GEOGRAPHICAL DIVERSIFICATION AND LONGEVITY RISK MITIGATION IN ANNUITY PORTFOLIOS

Published online by Cambridge University Press:  28 April 2021

Clemente De Rosa ,
Elisa Luciano  and
Luca Regis Open the ORCID record for Luca Regis [Opens in a new window]
Clemente De Rosa
Affiliation:
Scuola Normale Superiore Piazza dei Cavalieri 7 56126Pisa, Italy E-Mail: clemente.derosa@sns.it
Elisa Luciano
Affiliation:
ESOMAS Department University of Torino, Collegio Carlo Alberto and Institut Louis Bachelier Corso Unione Sovietica 218/bis 10134, Torino, Italy E-Mail: elisa.luciano@unito.it
Luca Regis*
Affiliation:
ESOMAS Department University of Torino and Collegio Carlo Alberto Corso Unione Sovietica 218/bis 10134, Torino, Italy E-Mail: luca.regis@unito.it
*
E-Mail: luca.regis@unito.it
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

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.

Keywords

Geographical diversificationlife insurancerisk managementmultipopulation mortalitylongevity risk modelingSolvency II capital requirementsF23F65G15G22
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 51 , Issue 2 , May 2021 , pp. 375 - 410
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Copyright
© 2021 by Astin Bulletin. All rights reserved

Footnotes

*

The authors thank the Global Risk Institute (Toronto) for financial support and its workshop participants in January 2017 for helpful suggestions. They thank participants and discussants in the 9th Financial Risk International Forum (Paris, March 2016), the 15th International Conference on Pensions, Insurance and Savings (Paris, May 2017), the Workshop on “Recent Developments in Dependence Modelling with Applications in Finance and Insurance” (Aegina, September 2018) as well as participants to the University of Florence inaugural Master lecture in October 2017, and the University of Verona day in honor of F. Rossi, for useful discussions and remarks. Financial support from the Italian Ministry of Education, University and Research (MIUR), “Dipartimenti di Eccellenza” grant 2018–2022 is gratefully acknowledged.

References

Biffis, E., Blake, D., Pitotti, L. and Sun, A. (2016) The cost of counterparty risk and collateralization in longevity swaps. Journal of Risk and Insurance, 83(2), 387–419.CrossRefGoogle Scholar
Blake, D., Cairns, A., Dowd, K. and MacMinn, R. (2006) Longevity bonds: Financial engineering, valuation, and hedging. Journal of Risk and Insurance, 73(4), 647–672.CrossRefGoogle Scholar
Blake, D., Cairns, A.J.G., Dowd, K. and Kessler, A.R. (2018) Still living with mortality: The longevity risk transfer market after one decade. British Actuarial Journal, 24, 1–80.CrossRefGoogle Scholar
Brigo, D. and Alfonsi, A. (2005) Credit default swap calibration and derivatives pricing with the ssrd stochastic intensity model. Finance and Stochastics, 9(1), 29–42.CrossRefGoogle Scholar
Brigo, D. and Mercurio, F. (2001) Interest Rate Models: Theory and Practice. Springer Finance. Berlin, Heidelberg, Paris: Springer.CrossRefGoogle Scholar
Cox, J.C., Ingersoll, J.E. Jr and Ross, S.A. (1985) An intertemporal general equilibrium model of asset prices. Econometrica: Journal of the Econometric Society, 53(2), 363–384.CrossRefGoogle Scholar
Cummins, J.D., Tennyson, S. and Weiss, M.A. (1999) Consolidation and efficiency in the us life insurance industry. Journal of Banking & Finance, 23(2), 325–357.CrossRefGoogle Scholar
Cummins, J.D. and Xie, X. (2008) Mergers and acquisitions in the us property-liability insurance industry: Productivity and efficiency effects. Journal of Banking & Finance, 32(1), 30–55.CrossRefGoogle Scholar
Dahl, M., Melchior, M. and Møller, T. (2008) On systematic mortality risk and risk-minimization with survivor swaps. Scandinavian Actuarial Journal, 2008(2–3), 114–146.CrossRefGoogle Scholar
De Rosa, C., Luciano, E. and Regis, L. (2017) Basis risk in static versus dynamic longevity-risk hedging. Scandinavian Actuarial Journal, 2017(4), 343–365.CrossRefGoogle Scholar
De Rosa, C., Luciano, E. and Regis, L. (2018) International longevity risk pooling. In Mathematical and Statistical Methods for Actuarial Sciences and Finance, pp. 317–321. Springer.CrossRefGoogle Scholar
Enchev, V., Kleinow, T. and Cairns, A.J. (2017) Multi-population mortality models: Fitting, forecasting and comparisons. Scandinavian Actuarial Journal, 2017(4), 319–342.CrossRefGoogle Scholar
Haberman, S., Kaishev, V., Millosovich, P., Villegas, A., Baxter, S., Gaches, A., Gunnlaugsson, S. and Sison, M. (2014) Longevity basis risk: A methodology for assessing basis risk. Institute and Faculty of Actuaries (IFoA) Sessional Research Paper.Google Scholar
Jevtić, P. and Regis, L. (2019) A continuous-time stochastic model for the mortality surface of multiple populations. Insurance: Mathematics and Economics, 88, 181–195.Google Scholar
Lee, R.D. and Carter, L.R. (1992) Modeling and forecasting us mortality. Journal of the American Statistical Association, 87(419), 659–671.Google Scholar
Li, N. and Lee, R. (2005) Coherent mortality forecasts for a group of populations: An extension of the lee-carter method. Demography, 42(3), 575–594.CrossRefGoogle ScholarPubMed
Luciano, E., Regis, L. and Vigna, E. (2012) Delta–gamma hedging of mortality and interest rate risk. Insurance: Mathematics and Economics, 50(3), 402–412.Google Scholar
Luciano, E., Spreeuw, J. and Vigna, E. (2008) Modelling stochastic mortality for dependent lives. Insurance: Mathematics and Economics, 43(2), 234–244.Google Scholar
Ma, Y.-L. and Pope, N. (2003) Determinants of international insurers’ participation in foreign non-life markets. Journal of Risk and Insurance, 70(2), 235–248.CrossRefGoogle Scholar
Milevsky, M.A. and Promislow, S.D. (2001) Mortality derivatives and the option to annuitise. Insurance: Mathematics and Economics, 29(3), 299–318.Google Scholar
Schoenmaker, D. and Sass, J. (2016) Cross-border insurance in europe: Challenges for supervision. The Geneva Papers on Risk and Insurance-Issues and Practice, 41(3), 351–377.CrossRefGoogle Scholar
Sherris, M., Xu, Y. and Ziveyi, J. (2020) Cohort and value-based multi-country longevity risk management. Scandinavian Actuarial Journal, 2020(7), 650–676.CrossRefGoogle Scholar
Yang, S.S. and Wang, C.-W. (2013) Pricing and securitization of multi-country longevity risk with mortality dependence. Insurance: Mathematics and Economics, 52(2), 157–169.Google Scholar