Stochastic mortality, macroeconomic risks, and life insurer solvency

T. Post, K. Hanewald, H. Gründl

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6 Citations (Scopus)

Abstract

Motivated by a recent demographic study establishing a link between macroeconomic fluctuations and the mortality index k t in the lee–carter model, we develop a dynamic asset-liability model to assess the impact of macroeconomic fluctuations on the solvency of a life insurance company. Liabilities in this stochastic simulation framework are driven by a gdp-linked variant of the lee–carter mortality model. Furthermore, interest rates and stock prices react to changes in gdp, which itself is modelled as a stochastic process. Our simulation results show that insolvency probabilities are significantly higher when the reaction of mortality rates to changes in gdp is incorporated.
Original languageEnglish
Pages (from-to)458-475
Number of pages18
JournalGeneva Papers On Risk and Insurance
Volume36
Issue number3
DOIs
Publication statusPublished - 1 Jan 2011

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