Periodic or Generational Actuarial Tables: Which One to Choose?

35 Pages Posted: 10 Jan 2018

See all articles by Severine Arnold (-Gaille)

Severine Arnold (-Gaille)

University of Lausanne - Faculty of Business and Economics

Anca Jijiie

Faculty of Business and Economics

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Date Written: December 1, 2017

Abstract

The increase in life expectancy over the past several decades has been impressive and represents a key challenge for institutions that provide life insurance products. Indeed, when a new actuarial table is released with updated survival and death rates, such institutions need to update the amount of mathematical reserve that they need to set aside to guarantee the future payments of their annuities. As mortality forecasting techniques are currently well developed, it is relatively easy to forecast mortality over several decades and to directly use these forecast rates in the determination of the mathematical reserve needed to guarantee annuity payments. Future mortality evolution is then directly incorporated into the liabilities valuation of an institution, and it is thus commonly believed that such liabilities should not require much updating when a new actuarial table is released. In this paper, we demonstrate that contrary to this common belief, institutions that use generational tables (namely, tables including future mortality evolution) will most likely need to make more important adjustments (positive or negative) to their liabilities than will institutions using periodic (static) tables whenever a new table is released. By using three very different models to project mortality, we demonstrate that our findings are inherent in the required long horizons of the forecasts needed in the generational approach, with the uncertainty surrounding the forecast values increasing with the horizon. Therefore, generational tables may introduce more instability in a pension institution’s accounts than periodic tables.

Keywords: Mortality rates, Periodic actuarial tables, Generational actuarial tables, Life expectancy, Mathematical reserve, Mortality forecasts

Suggested Citation

Arnold (-Gaille), Severine and Jijiie, Anca and Jondeau, Eric and Rockinger, Georg Michael, Periodic or Generational Actuarial Tables: Which One to Choose? (December 1, 2017). Swiss Finance Institute Research Paper No. 17-71. Available at SSRN: https://ssrn.com/abstract=3099103 or http://dx.doi.org/10.2139/ssrn.3099103

Severine Arnold (-Gaille)

University of Lausanne - Faculty of Business and Economics ( email )

University of Lausanne
DSA
Lausanne, Vaud 1015
Switzerland
+41 21 692 33 72 (Phone)

HOME PAGE: http://www.hec.unil.ch/people/sarnold

Anca Jijiie

Faculty of Business and Economics

Quartier UNIL-Chamberonne
Batiment Extranef
Lausanne, Vaud CH-1015
Switzerland

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Georg Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 728 3348 (Phone)
+41+21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/mrockinger

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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