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Abstract Details

Activity Number: 506
Type: Contributed
Date/Time: Wednesday, August 1, 2012 : 10:30 AM to 12:20 PM
Sponsor: Section on Risk Analysis
Abstract - #306552
Title: Modeling Mortality and Longevity Risk
Author(s): Mary M Louie*+ and Greta M Ljung
Companies: AIR Worldwide and AIR Worldwide
Address: 131 Dartmouth St, Boston, MA, 02116, United States
Keywords: stochastic mortality model ; longevity ; longevity bonds ; risk transfer

Unanticipated changes in mortality rates and longevity pose a risk to life insurers and pension funds. In particular, if longevity increases more than expected, annuity providers may be exposed to payout levels that are higher than what a company or fund originally planned for. Even a relatively small change in life expectancies could create solvency problems for pension plans and insurers. Financing mechanisms introduced to address this issue include the transfer of longevity risks to financial markets through longevity bonds and mortality-linked securities. Stochastic mortality models are needed for pricing of these instruments. We review and compare the forecasting performance of some alternative mortality models and describe a general framework for calibrating and improving forecasts.

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