A Value-at-Risk framework for longevity trend risk. (25th January 2013)

• Record Type: Journal Article
• Authors: Richards, S. J.; Currie, I. D.; Ritchie, G. P.
• Is Part Of: British actuarial journal. Volume 19:Number 1(2014:Mar.)
• Page Start: 116
• Page End: 139
• Publication Date: 2013-01-25
• Subjects: Actuarial science -- Periodicals; Insurance, Life -- Periodicals; Periodicals; Periodicals; 368.010941
• DOI: 10.1017/S1357321712000451
• Languages: English
• ISSNs: 1357-3217

Abstract

<abstract abstract-type="normal"> <title>Abstract</title> <p>Longevity risk faced by annuity portfolios and defined-benefit pension schemes is typically long-term, i.e. the risk is of an adverse trend which unfolds over a long period of time. However, there are circumstances when it is useful to know by how much expectations of future mortality rates might change over a single year. Such an approach lies at the heart of the one-year, value-at-risk view of reserves, and also for the pending Solvency II regime for insurers in the European Union. This paper describes a framework for determining how much a longevity liability might change based on new information over the course of one year. It is a general framework and can accommodate a wide choice of stochastic projection models, thus allowing the user to explore the importance of model risk. A further benefit of the framework is that it also provides a robustness test for projection models, which is useful in selecting an internal model for management purposes.</p> </abstract>