Redistribution of longevity risk: The effect of heterogeneous mortality beliefs

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Existing literature regarding the natural hedge potential that arises from combining different longevity linked liabilities typically does not address the question how changes in the liability mix can be obtained. We consider firms who aim to exploit the benefits of natural hedge potential by redistributing their risks, and characterize the risk redistributions that will arise when the parties bargain for a redistribution of risk that weakly benefits them all. We analyze the effects of heterogeneity in the beliefs regarding the probability distribution of future mortality rates on the properties of these risk redistributions, and provide a numerical illustration for a case where an insurer with a portfolio of term assurance contracts and a pension fund with a portfolio of life annuities redistribute their risks. (C) 2016 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)175-188
JournalInsurance: Mathematics & Economics
Volume72
DOIs
Publication statusPublished - Jan 2017

Keywords

  • Risk redistribution
  • Longevity risk
  • Nash bargaining
  • Heterogeneous beliefs
  • Natural hedge potential

Cite this

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title = "Redistribution of longevity risk: The effect of heterogeneous mortality beliefs",
abstract = "Existing literature regarding the natural hedge potential that arises from combining different longevity linked liabilities typically does not address the question how changes in the liability mix can be obtained. We consider firms who aim to exploit the benefits of natural hedge potential by redistributing their risks, and characterize the risk redistributions that will arise when the parties bargain for a redistribution of risk that weakly benefits them all. We analyze the effects of heterogeneity in the beliefs regarding the probability distribution of future mortality rates on the properties of these risk redistributions, and provide a numerical illustration for a case where an insurer with a portfolio of term assurance contracts and a pension fund with a portfolio of life annuities redistribute their risks. (C) 2016 Elsevier B.V. All rights reserved.",
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author = "Tim Boonen and {De Waegenaere}, Anja and Henk Norde",
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Redistribution of longevity risk : The effect of heterogeneous mortality beliefs. / Boonen, Tim; De Waegenaere, Anja; Norde, Henk.

In: Insurance: Mathematics & Economics, Vol. 72, 01.2017, p. 175-188.

Research output: Contribution to journalArticleScientificpeer-review

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AU - Norde, Henk

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AB - Existing literature regarding the natural hedge potential that arises from combining different longevity linked liabilities typically does not address the question how changes in the liability mix can be obtained. We consider firms who aim to exploit the benefits of natural hedge potential by redistributing their risks, and characterize the risk redistributions that will arise when the parties bargain for a redistribution of risk that weakly benefits them all. We analyze the effects of heterogeneity in the beliefs regarding the probability distribution of future mortality rates on the properties of these risk redistributions, and provide a numerical illustration for a case where an insurer with a portfolio of term assurance contracts and a pension fund with a portfolio of life annuities redistribute their risks. (C) 2016 Elsevier B.V. All rights reserved.

KW - Risk redistribution

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