Publicação
A model for risk adjustment for longevity risk in life insurance under IFRS 17
| Resumo: | In this Master Final Work, a new Model for the Risk Adjustment for Longevity Risk in Life Insurance is proposed and it is compared with the classical techniques for calculating the Risk Adjustment, discussing its advantages and disadvantages. In recent years, the insurance sector has evolved to standardize financial, actuarial and accounting reporting processes in order to be able to assess and compare the insurance companies’ performance. New standards have emerged to achieve this shared vision, such as the IFRS 17 - Insurance Contracts. The objective of this internship was to study the Risk Adjustment in Life Insurance. The Risk Adjustment is one of the components of liabilities measurement under IFRS 17 which reflects the compensation that an insurance company requires to support the uncertainty arising from non-financial risks. The standard does not prescribe any technique for its calculation, making it one of the major challenges for insurance companies in implementing the IFRS 17. In this work, an original model for calculating the Risk Adjustment for Longevity Risk in Life Insurance is developed. It is based on statistical concepts, such as: Convex Ordering of Risks; Comonotonicity; and the Bounds of Sums of Random Variables. The new model creates an interval containing the Risk Adjustment to be applied to a given life insurance portfolio under longevity risk by applying an analytical formula. The analytical expression for the bounding interval is easy to implement and obtain results from. By using data inspired on a real life insurance portfolio of a leading insurance company operating in Portugal, it is shown that this model, which focuses on the volatility of the historical behavior of the portfolio in terms of exposure and deaths, has several good characteristics when compared to the classical techniques for calculating the Risk Adjustment: the Quantile Techniques; and the Cost-of-Capital Technique. |
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| Autores principais: | Rodrigues, Diogo Filipe Jerónimo |
| Assunto: | Risk Adjustment Longevity Risk IFRS 17 Comonotonicity Convex Ordering Life Insurance Risk Adjustment Risco de Longevidade IFRS 17 Comonotonicidade Ordenação Convexa Seguros de Vida |
| Ano: | 2023 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório da Universidade de Lisboa |
| Resumo: | In this Master Final Work, a new Model for the Risk Adjustment for Longevity Risk in Life Insurance is proposed and it is compared with the classical techniques for calculating the Risk Adjustment, discussing its advantages and disadvantages. In recent years, the insurance sector has evolved to standardize financial, actuarial and accounting reporting processes in order to be able to assess and compare the insurance companies’ performance. New standards have emerged to achieve this shared vision, such as the IFRS 17 - Insurance Contracts. The objective of this internship was to study the Risk Adjustment in Life Insurance. The Risk Adjustment is one of the components of liabilities measurement under IFRS 17 which reflects the compensation that an insurance company requires to support the uncertainty arising from non-financial risks. The standard does not prescribe any technique for its calculation, making it one of the major challenges for insurance companies in implementing the IFRS 17. In this work, an original model for calculating the Risk Adjustment for Longevity Risk in Life Insurance is developed. It is based on statistical concepts, such as: Convex Ordering of Risks; Comonotonicity; and the Bounds of Sums of Random Variables. The new model creates an interval containing the Risk Adjustment to be applied to a given life insurance portfolio under longevity risk by applying an analytical formula. The analytical expression for the bounding interval is easy to implement and obtain results from. By using data inspired on a real life insurance portfolio of a leading insurance company operating in Portugal, it is shown that this model, which focuses on the volatility of the historical behavior of the portfolio in terms of exposure and deaths, has several good characteristics when compared to the classical techniques for calculating the Risk Adjustment: the Quantile Techniques; and the Cost-of-Capital Technique. |
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