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"Longevity risk: the effect of product design, product mix, and portfolio composition"

Event details of Insurance seminar: Anja de Waegenaere (University of Tilburg)
Date 20 June 2008
Time 12:00 -13:00
Location Roeterseilandcampus - building E

"Longevity risk: the effect of product design, product mix, and portfolio composition"

The goal of the paper is to identify possibilities for longevity risk management through product design, reinsurance, or swap agreements. We consider different types of annuities, with and without exchange options. Options to exchange partner benefits for additional old-age benefits, or vice versa, are common in defined benefit pension schemes in the US and the Netherlands. Since the exchange has to be actuarially neutral at the time of exchange, the exchange rate is also affected by longevity risk. We find that the effect of longevity risk on the aggregate liabilities in a fund depends strongly on portfolio composition as well as on product mix. In particular, the presence of exchange options has significant effect. This has three important implications. First, product redesign can help to mitigate the adverse effects of longevity risk for pension funds and insurers. Second, in determining solvency buffers and/or market value margins, regulators should ideally take into account gender and product mix, as well as the effect of options embedded in the annuity contracts. Finally, reinsurance or swap contracts that affect product mix or portfolio composition can yield Pareto optimal redistributions of longevity risk.

The seminar will take place in the E-building in room E1.17, see below for the address.

Roeterseilandcampus - building E

Roetersstraat 11
1018 WB Amsterdam

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