Summary:
This paper incorporates mortality shocks in the scenarios for future mortality rates produced by a stochastic multi-population mortality model. Hereto, the proposed model combines a decreasing stochastic mortality trend with a mechanism that switches between regimes of low and high volatility. During the high volatility regimes, mortality shocks occur that last from one to several years and temporarily impact the mortality rates before returning to the overall mortality trend. Furthermore, we account for the age-specific impact of these mortality shocks on mortality rates. Actuaries and risk managers can tailor this scenario generator to their specific needs, risk management objectives, or supervisory requirements. The generated scenarios allow (re)insurers, policymakers, or actuaries to evaluate the effects of different catastrophe risk scenarios on, for example, the calculation of solvency capital requirements.
Publication:
This paper was published in the Journal of Risk and Insurance on the 18th of April 2024
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Authors:
Jens Robben of the Faculty of Economics and Business, KU Leuven, Leuven, Belgium
LRisk, Leuven Research Center on Insurance and Financial Risk Analysis, KU Leuven, Leuven, Belgium
Katrien Antonio of the Faculty of Economics and Business, KU Leuven, Leuven, Belgium
LRisk, Leuven Research Center on Insurance and Financial Risk Analysis, KU Leuven, Leuven, Belgium
Faculty of Economics and Business, University of Amsterdam, Amsterdam, The Netherlands
LStat, Leuven Statistics Research Center, KU Leuven, Leuven, Belgium
RCLR, Research Centre for Longevity Risk, University of Amsterdam, Amsterdam, The Netherlands
Keywords:
Mortality projections; Mortality rates; Mortality trends; Stochastic modelling, Mortality shocks