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The impact of longevity and investment risk on a portfolio of life insurance liabilities

Bacinello, A. R., Chen, A. & Millossovich, P. ORCID: 0000-0001-8269-7507 (2018). The impact of longevity and investment risk on a portfolio of life insurance liabilities. European Actuarial Journal, 8(2), pp. 257-290. doi: 10.1007/s13385-018-0175-5


In this paper we assess the joint impact of biometric and financial risk on the market valuation of life insurance liabilities. We consider a stylized, contingent claim based model of a life insurance company issuing participating contracts and subject to default risk, as pioneered by Briys and de Varenne (Geneva Pap Risk Insur Theory 19(1):53–72, 1994, J Risk Insur 64(4):673–694, 1997), and build on their model by explicitly introducing biometric risk and its components, namely diversifiable and systematic risk. The contracts considered include pure endowments, deferred whole life annuities and guaranteed annuity options. Our results stress the predominance of systematic over diversifiable risk in determining fair participation rates. We investigate the interaction of contract design, market regimes and mortality assumptions, and show that, particularly for lifelong benefits, the choice of the participation rate must be very conservative if longevity improvements are foreseeable.

Publication Type: Article
Additional Information: This is a post-peer-review, pre-copyedit version of an article published in European Actuarial Journal. The final authenticated version is available online at:
Publisher Keywords: Solvency; Longevity; risk Investment risk; Fair valuation; Participating life insurance
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Departments: Bayes Business School > Actuarial Science & Insurance
SWORD Depositor:
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