City Research Online

Abstract

While the solvency analysis of immediate life annuity portfolios has been extensively studied, the case of deferred annuities has received comparatively much less attention. We assess the importance and effect of stochastic mortality models and interest rates on the solvency analysis of a portfolio of deferred annuity contracts. Our analysis considers three steps: first, the benchmark case where mortality rates and interest rates are both deterministic; then, the case in which only mortality rates are stochastic is explored; finally, the full model where both mortality rates and interest rates are stochastic. The results demonstrate the model risk stemming from the uncertainty in the mortality models and its impact on the evaluation of solvency margins for life annuities. The role of the deferment period is thoroughly discussed and compared to the case of immediate annuities.

Publication Type:	Article
Additional Information:	This article is licensed under a CreativeCommonsAttribution 4.0 InternationalLicense,which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Publisher Keywords:	Deferred annuities, Solvency, Reserves, Longevity risk, Interest rate risk
Subjects:	H Social Sciences > HA Statistics H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Actuarial Science & Insurance
SWORD Depositor:	Symplectic Administrator

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