Periodic or Generational Actuarial Tables: Which One to Choose?

Details

Serval ID
serval:BIB_5EE4D9189F02
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Periodic or Generational Actuarial Tables: Which One to Choose?
Journal
European Actuarial Journal
Author(s)
Arnold S., Jijiie A., Jondeau E., Rockinger M.
Publication state
Published
Issued date
31/12/2019
Peer-reviewed
Oui
Volume
9
Number
2
Pages
519-554
Language
english
Abstract
The increase in life expectancy over the past several decades has been impressive
and represents a key challenge for institutions that provide life insurance products.
Indeed, when a new actuarial table is released with updated survival and death rates,
such institutions need to update the amount of mathematical reserve that they need
to set aside to guarantee the future payments of their annuities. As mortality forecasting
techniques are currently well developed, it is relatively easy to forecast mortality
over several decades and to directly use these forecast rates in the determination
of the mathematical reserve needed to guarantee annuity payments. Future
mortality evolution is then directly incorporated into the liabilities valuation of an
institution, and it is thus commonly believed that such liabilities should not require
much updating when a new actuarial table is released. In this paper, we demonstrate
that contrary to this common belief, institutions that use generational tables (namely,
tables including future mortality evolution) will most likely need to make more
important adjustments (positive or negative) to their liabilities than will institutions
using periodic (static) tables whenever a new table is released. By using three very
different models to project mortality, we demonstrate that our findings are inherent
in the required long horizons of the forecasts needed in the generational approach,
with the uncertainty surrounding the forecast values increasing with the horizon.
Therefore, generational tables may introduce more instability in a pension institution’s
accounts than periodic tables.
Keywords
Mortality rates, Periodic actuarial tables, Generational actuarial tables, Life expectancy, Mathematical reserve, Mortality forecasts
Create date
18/03/2019 15:29
Last modification date
22/01/2020 6:19
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