Crunching Mortality and Life Insurance Portfolios with Extended CreditRisk
19 Pages Posted: 19 Jan 2016 Last revised: 20 Dec 2016
Date Written: November 25, 2016
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
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