On the effectiveness of natural hedging for insurance companies and pension plans
Natural hedging is one possible method to reduce longevity risk exposure for an annuity provider or a pension plan. In this paper, we provide an assessment of the effectiveness of natural hedging between annuity and life products, using the correlated Poisson Lee–Carter model, Poisson common factor...
| Main Authors: | , |
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| Format: | Journal Article |
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Elsevier BV
2015
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| Online Access: | http://hdl.handle.net/20.500.11937/35078 |
| _version_ | 1848754397642752000 |
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| author | Li, Ka Ki Jackie Haberman, S. |
| author_facet | Li, Ka Ki Jackie Haberman, S. |
| author_sort | Li, Ka Ki Jackie |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Natural hedging is one possible method to reduce longevity risk exposure for an annuity provider or a pension plan. In this paper, we provide an assessment of the effectiveness of natural hedging between annuity and life products, using the correlated Poisson Lee–Carter model, Poisson common factor model, product-ratio model, and historical simulation. Our analysis is based on the mortality experience of UK assured lives, pensioners, and annuitants, and the national population of England and Wales. We consider a range of different scenarios, and find that the level of risk reduction is significant in general, with an average of around 60%. These results have important implications for those insurers, reinsurers, and pension plan sponsors who are seeking ways to hedge their unwanted risk exposures. |
| first_indexed | 2025-11-14T08:39:46Z |
| format | Journal Article |
| id | curtin-20.500.11937-35078 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T08:39:46Z |
| publishDate | 2015 |
| publisher | Elsevier BV |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-350782018-03-29T09:08:50Z On the effectiveness of natural hedging for insurance companies and pension plans Li, Ka Ki Jackie Haberman, S. Natural hedging Longevity risk Historical simulation Product-ratio model Poisson common factor model Value-at-Risk Risk reduction Poisson Lee–Carter model Natural hedging is one possible method to reduce longevity risk exposure for an annuity provider or a pension plan. In this paper, we provide an assessment of the effectiveness of natural hedging between annuity and life products, using the correlated Poisson Lee–Carter model, Poisson common factor model, product-ratio model, and historical simulation. Our analysis is based on the mortality experience of UK assured lives, pensioners, and annuitants, and the national population of England and Wales. We consider a range of different scenarios, and find that the level of risk reduction is significant in general, with an average of around 60%. These results have important implications for those insurers, reinsurers, and pension plan sponsors who are seeking ways to hedge their unwanted risk exposures. 2015 Journal Article http://hdl.handle.net/20.500.11937/35078 10.1016/j.insmatheco.2015.01.009 Elsevier BV restricted |
| spellingShingle | Natural hedging Longevity risk Historical simulation Product-ratio model Poisson common factor model Value-at-Risk Risk reduction Poisson Lee–Carter model Li, Ka Ki Jackie Haberman, S. On the effectiveness of natural hedging for insurance companies and pension plans |
| title | On the effectiveness of natural hedging for insurance companies and pension plans |
| title_full | On the effectiveness of natural hedging for insurance companies and pension plans |
| title_fullStr | On the effectiveness of natural hedging for insurance companies and pension plans |
| title_full_unstemmed | On the effectiveness of natural hedging for insurance companies and pension plans |
| title_short | On the effectiveness of natural hedging for insurance companies and pension plans |
| title_sort | on the effectiveness of natural hedging for insurance companies and pension plans |
| topic | Natural hedging Longevity risk Historical simulation Product-ratio model Poisson common factor model Value-at-Risk Risk reduction Poisson Lee–Carter model |
| url | http://hdl.handle.net/20.500.11937/35078 |