Understanding Patterns of Mortality Homogeneity and Heterogeneity Across Countries and Their Role in Modeling Mortality Dynamics and Hedging Longevity Risk. (18th February 2021)

• Record Type: Journal Article
• Authors: Yang, Sharon S.; Yeh, Yu-Yun; Yue, Jack C.; Huang, Hong Chih
• Is Part Of: North American actuarial journal. Volume 25(2021)Supplement 1
• Page Start: S132
• Page End: S155
• Publication Date: 2021-02-18
• Subjects: Life insurance -- Research -- North America -- Periodicals; Actuarial science -- North America -- Periodicals; Web sites; Electronic journals; 368.010973
• DOI: 10.1080/10920277.2019.1662315
• Languages: English
• ISSNs: 2325-0453

Abstract

Abstract : Understanding patterns of mortality homogeneity and heterogeneity across countries can assist in modeling mortality dynamics and in hedging longevity risk. This study proposes a methodology, based on the graduation method, to detect differences in mortality rates across different populations. Using an index h ̂ 2 based on the partial standard mortality ratio, we measure mortality homogeneity and heterogeneity, then conduct an empirical study across countries with emerging and developed markets. The results of model fitting show that it is inappropriate to use a coherent mortality model for the mortality-heterogeneous populations. In an application, we demonstrate that a reinsurer can utilize information concerning mortality homogeneity/heterogeneity for pooling risk in its books of life insurance and annuity businesses and increase overall hedge effectiveness. The coherent mortality model can help reduce the volatility of the reinsurer's profit and help the reinsurer diversify its longevity risk.