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

Petar Jevtic, Luca Regis

Research output: Contribution to journalArticle

3 Citations (Scopus)

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
Externally publishedYes

Fingerprint

Insurance
Continuous Time
Hedging
Interest Rates
Asset Allocation
Financial Risk
Model
Evaluate
Historical Data
Solvency
Liability
Portfolio insurance
Continuous time
Cohort
Numerical Simulation
Longevity risk
Insurer
Assets
Interest rate risk

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

Cite this

Assessing the solvency of insurance portfolios via a continuous-time cohort model. / Jevtic, Petar; Regis, Luca.

In: Insurance: Mathematics and Economics, Vol. 61, 01.03.2015, p. 36-47.

Research output: Contribution to journalArticle

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