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I wrote earlier about survivor forwards as a means of transferring longevity risk. One natural question for investors to ask is: what is the likelihood of loss exceeding a given amount?
Currency devaluation
I have written before on aspects of the CMI's new deterministic projection model. One hoped-for goal was that the CMI 2010 model would become a "common currency" for communicating mortality-improvement bases.
Model risk
Investors in longevity risk are particularly interested in extremes — they want to know the maximum loss they are likely to bear for a given probability. Reinsurers can be even more strongly interested in extremes, especially if they have written stop-loss reinsurance.
Forecasting mortality at high ages
The forecasting of future mortality at high ages presents additional challenges to the actuary. As an illustration of the problem, let us consider the CMI assured-lives data set for years 1950–2005 and ages 40–100 (see Stephen's blog posts on selection and data volumes). The blue curve (partly hidden under the green curve) in Figure 1 shows observed log(mortality) averaged over time.
Don't shoot the messenger
Stochastic projection models have many advantages — they not only give best-estimate projections, but also confidence intervals around those projections.
Applying the brakes
The CMI has released a second version of its deterministic targeting model for mortality improvements. This type of model is called an expectation, as the user must enter their belief for the long-term rate of mortality improvement to use the tool. Expectations have their own unique features, as discussed
Keeping it simple — postscript
Last week we looked at how to compare mortality-improvement bases for pensions and annuities. However, for many years some pension schemes in the UK did not have explicit mortality-improvement projections. Instead, they allowed for mortality improvements by making a deduction from the valuation discount rate.
Keeping it simple
Which mortality-improvement basis is tougher — a medium-cohort projection with a 2% minimum value, or a long-cohort projection with a 1% minimum?
A rose by any other name
How important are the labels we give to things? In a seminal paper Richard Willets brought a particular mortality phenomenon to the attention of the UK actuarial profession
Volatility v. Trend Risk
The year 1992 was important in the development of forecasting methods: Ronald Lee and Lawrence Carter published their highly influential paper on forecasting US mortality.