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Natural hedging allows life insurers to manage long-term longevity and investment risks of life annuity products through offsetting risks in life insurance products. Benefits include a reduction in risk-based capital. We use stochastic mortality and interest rate models to assess life insurance and annuity capital requirements and to quantify the benefits of natural hedging for a range of different types of life insurance product designs and risk measures based on probability of insurer solvency. We show that level-premium life insurance products with a medium duration (around 20-30 years) can better hedge annuity products than whole life products. Renewable term life insurance products have less hedge effectiveness than level-premium term insurance. Results vary with the risk measure used, with the 1-year horizon Solvency II risk measure showing lower natural hedging benefits of life insurance compared to multiple-period risk measures., INTRODUCTION Life annuities are recognized as an important product that protects individuals against longevity risk and investment risk in retirement. The recent global financial crisis, which resulted in significant falls [...]

ABSTRACT We study the decision problem of the optimal choice between home equity release products from a retired homeowner's perspective in the presence of longevity, long-term care, house price, and [...]

This article assesses the cost and risk faced by public sector, defined benefit plan providers arising from uncertain mortality, including longevity selection, mortality improvements, and unexpected systematic shocks. Using longitudinal microdata on Australian pensioners, we quantify the extent of longevity selection at both aggregate and scheme level. We also show that as the age-membership structure in a pension scheme matures, scheme-specific longevity selection risk and systematic shocks become quantitatively more important and have larger consequences for plan liabilities than aggregate selection risk or the impact of mortality improvements., INTRODUCTION Public sector employees are traditionally covered by government-sponsored pension schemes exclusive to civil servants. In recent times, the funding of public sector pensions has attracted much policy attention around [...]

ABSTRACT Group self-annuitization (GSA) schemes are designed to share uncertain future mortality experience including systematic improvements. Challenges for designing group pooled schemes include decreasing average payments when mortality improves significantly, [...]

ABSTRACT Mortality is a stochastic process. We have imprecise knowledge about the probability distribution of mortality rates in the future. Mortality risk, therefore, can be defined in a broader term [...]

Introduction In a number of countries, including the United States and Australia, retirement funds have been designed that offer 'greater of' retirement, resignation, and death benefits that are the maximum [...]