Different Shades of Risk: Mortality Trends Implied by Term Insurance Prices. (18th February 2021)

• Record Type: Journal Article
• Authors: Guo, Qiheng; Bauer, Daniel
• Is Part Of: North American actuarial journal. Volume 25(2021)Supplement 1
• Page Start: S156
• Page End: S169
• Publication Date: 2021-02-18
• Subjects: Life insurance -- Research -- North America -- Periodicals; Actuarial science -- North America -- Periodicals; Web sites; Electronic journals; 368.010973
• DOI: 10.1080/10920277.2019.1651656
• Languages: English
• ISSNs: 2325-0453

Abstract

Abstract : To infer forward-looking, market-based mortality trends, we estimate a flexible affine stochastic mortality model based on a set of U.S. term life insurance prices using a generalized method of moments approach. We find that neither mortality shocks nor stochasticity in the aggregate trend seem to affect the prices. In contrast, allowing for heterogeneity in the mortality rates across carriers is crucial. We conclude that for life insurance, rather than aggregate mortality risk, the key risks emanate from the composition of the portfolio of policyholders. These findings have consequences for mortality risk management and emphasize important directions for mortality-related actuarial research.