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Longevity risk under Solvency II
Longevity risk faced by annuity portfolios usually unfolds over a long period of time, but it may be useful to study it over shorter time horizons in the context of capital requirements, such as the proposed Solvency II regime for insurers in the European Union. Here, Stephen Richards, Iain Currie and Gavin Ritchie describe a framework that determines how much a longevity liability changes with new information over the course of one year
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Insurers and pension schemes face longevity risk in the pensions they pay, since a financial loss is incurred if pensioners live longer than expected. However, longevity is different from other risks because one part of the risk lies in the long-term trend taken by mortality rates. In this article we will focus on the risk posed by a long-term trend. A trend here means a sustained pattern of mortality improvements over many years, often decades. Trend risk is where these mortality improvements
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