Assessment of longevity risk: credibility approach

Area of Science:

• Actuarial Science
• Demography
• Financial Risk Management

Background:

• Insurance and pension providers face financial risks influenced by mortality rates.
• Accurately measuring longevity risk is crucial for financial stability assessments.
• Future mortality trends and population structures vary significantly across countries.

Purpose of the Study:

• To investigate future mortality and longevity risks across different countries and age structures.
• To assess the impact of longevity risk on hypothetical insurance and pension portfolios.
• To quantify the net single premium for annuities considering future longevity risks.

Main Methods:

• Utilized the Lee-Carter mortality model with historical census data for forecasting.
• Analyzed longevity risk using static and dynamic mortality table approaches.
• Employed a stochastic mortality model to determine the impact on a pension insurance product.
• Proposed a credibility approach for reliable annuity net single premium estimation.

Main Results:

• Forecasted future mortality rates for Turkey, Germany, and Japan based on their demographic profiles.
• Quantified the net single premium for annuities under various longevity risk scenarios.
• Demonstrated the significant impact of longevity risk on annuity pricing.

Conclusions:

• Longevity risk is a critical factor in the financial stability of insurance and pension providers.
• The Lee-Carter model provides a robust framework for forecasting mortality trends.
• The proposed credibility approach offers a reliable method for estimating annuity premiums in the face of longevity risk.