Jens Robben of the Faculty of Economics and Business, KU Leuven, Belgium and LRisk, Leuven Research Center on Insurance and Financial Risk Analysis, KU Leuven, Belgium
Katrien Antonio of The Faculty of Economics and Business, KU Leuven, Belgium; Faculty of Economics and Business, University of Amsterdam, The Netherlands; LRisk, Leuven Research Center on Insurance and Financial Risk Analysis, KU Leuven, Belgium; LStat, Leuven Statistics Research Center, KU Leuven, Belgium, and RCLR, Research Centre for Longevity Risk, University of Amsterdam, The Netherlands.
This paper presents an approach to incorporate mortality shocks into mortality projections produced by a stochastic multi-population mortality model. The proposed model combines a decreasing stochastic mortality trend with a regime-switching mechanism that captures age-specific mortality shocks over a lengthy calibration period. The result is a flexible and
powerful toolbox that actuaries and risk managers can tailor to their specific needs, risk appetite, or supervisory requirements. We illustrate the proposed mortality model with a case study on projecting Dutch mortality rates. Our findings show that the proposed model generates wider prediction intervals for the mortality rates compared to state-of-the-art stochastic mortality models. The width of these prediction intervals depends on the frequency and severity of the mortality shocks calibrated with the regime-switching model. Furthermore, we compare the solvency capital requirement (SCR) for mortality, longevity and catastrophe risk generated by our toolbox with the SCR under the Solvency II standard model.
Mortality shocks; regime switch; multi-population mortality model; mortality improvement model; stochastic mortality model; catastrophe risk