An optimal strategy of natural hedging for a general portfolio of insurance companies

• Main Authors: Hong, De Chuan, 洪德全
• Other Authors: 黃泓智
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/45876141331113264602

碩士 === 國立政治大學 === 風險管理與保險研究所 === 98 === The mortality rate of human being has decreased year by year due to the improvement of medical and hygienic techniques. With the mortality improvement over time, life insurers may gain a profit and annuity insurers may suffer losses because of longevity risk. However, natural hedging is a feasible strategy to hedge mortality risk and interest risk at the same time. In this paper, we investigate the natural hedging strategy and try to find an optimal collocation of insurance products to deal with longevity risks for the insurance companies. Different from previous literatures, we use the experienced mortality rates from life insurance companies rather than population mortality rates. This experienced mortality data set includes more than 50,000,000 policies which are collected from the incidence data of the whole Taiwan life insurance companies. In general, insurance companies use population mortality rates to price life insurance and annuity products. Nevertheless, the mortality rate of annuity purchasers is averagely lower than that of life insurance purchasers. This situation leads to mispricing problem of both life insurance and annuity products. So in this paper, we can construct four mortality tables (gender, product) and investigate the correlation of these stochastic variation terms of four mortality rates. According to the correlation relation between these four mortality rates, we can offset the variance of portfolio’s change and difference of mispricing. On the basis of the experienced mortality rates, we demonstrate that the proposed model can lead to an optimal collocation of insurance products and effectively apply the natural hedging strategy to a more general portfolio for life insurance companies.