Crunching Mortality and Life Insurance Portfolios with Extended CreditRisk

19 Pages Posted: 19 Jan 2016 Last revised: 20 Dec 2016

See all articles by Jonas Hirz

Jonas Hirz

Boston Consulting Group

Uwe Schmock

TU Wien

Pavel V. Shevchenko

Macquarie University; Macquarie University, Macquarie Business School

Date Written: November 25, 2016

Abstract

Using an extended version of the credit risk model CreditRisk, we develop a flexible framework with numerous applications amongst which we find stochastic mortality modelling, forecasting of death causes as well as profit and loss modelling of life insurance and annuity portfolios which can be used in (partial) internal models under Solvency II. Yet, there exists a fast and numerically stable algorithm to derive loss distributions exactly, even for large portfolios. We provide various estimation procedures based on publicly available data. Compared to the Lee-Carter model, we have a more flexible framework, get tighter bounds and can directly extract several sources of uncertainty. Straight-forward model validation techniques are available.

Keywords: Stochastic mortality, mortality trends, cohort effects, extended CreditRisk, Markov chain Monte Carlo, regularisation via prior distribution, risk aggregation, annuity portfolios, partial internal model, underwriting risk module

JEL Classification: C13, C15, I12, J11, G20

Suggested Citation

Hirz, Jonas and Schmock, Uwe and Shevchenko, Pavel V., Crunching Mortality and Life Insurance Portfolios with Extended CreditRisk (November 25, 2016). Available at SSRN: https://ssrn.com/abstract=2717518 or http://dx.doi.org/10.2139/ssrn.2717518

Jonas Hirz (Contact Author)

Boston Consulting Group

Austria

Uwe Schmock

TU Wien ( email )

Karlsplatz 13
Vienna
Austria

Pavel V. Shevchenko

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

HOME PAGE: http://www.businessandeconomics.mq.edu.au/contact_the_faculty/all_fbe_staff/pavel_shevchenko

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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