Assessing the solvency of insurance portfolios via a continuous-time cohort model

Petar Jevtić, Luca Regis

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

This paper evaluates the solvency of a portfolio of assets and liabilities of an insurer subject to both longevity and financial risks. Liabilities are evaluated at fair-value and, as a consequence, interest-rate risk can affect both the assets and the liabilities. Longevity risk is described via a continuous-time cohort model. We evaluate the effects of natural hedging strategies on the risk profile of an insurance portfolio in run-off. Numerical simulations, calibrated to UK historical data, show that systematic longevity risk is of particular importance and needs to be hedged. Natural hedging can improve the solvency of the insurer, if interest-rate risk is appropriately managed. We stress that asset allocation choices should not be independent of the composition of the liability portfolio of the insurer.

Original languageEnglish (US)
Pages (from-to)36-47
Number of pages12
JournalInsurance: Mathematics and Economics
Volume61
DOIs
StatePublished - Mar 1 2015

Keywords

  • Continuous-time cohort models for longevity
  • Longevity and interest-rate risk
  • Longevity risk
  • Natural hedging
  • Solvency of insurance portfolios
  • Solvency requirements

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Fingerprint Dive into the research topics of 'Assessing the solvency of insurance portfolios via a continuous-time cohort model'. Together they form a unique fingerprint.

  • Cite this