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De-risking in multi-state life and health insurance

Published online by Cambridge University Press:  22 April 2024

Susanna Levantesi ,
Massimiliano Menzietti  and
Anna Kamille Nyegaard Open the ORCID record for Anna Kamille Nyegaard [Opens in a new window]
Susanna Levantesi
Affiliation:
Sapienza University of Rome, Rome, Italy
Massimiliano Menzietti
Affiliation:
University of Salerno, Fisciano, Italy
Anna Kamille Nyegaard*
Affiliation:
University of Copenhagen, Copenhagen, Denmark
*
Corresponding author: Anna Kamille Nyegaard; Email: akp@math.ku.dk
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Abstract

The calculation of life and health insurance liabilities is based on assumptions about mortality and disability rates, and insurance companies face systematic insurance risks if assumptions about these rates change. In this paper, we study how to manage systematic insurance risks in a multi-state setup by considering securities linked to the transition intensities of the model. We assume there exists a market for trading two securities linked to, for instance, mortality and disability rates, the de-risking option and the de-risking swap, and we describe the optimization problem to find the de-risking strategy that minimizes systematic insurance risks in a multi-state setup. We develop a numerical example based on the disability model, and the results imply that systematic insurance risks significantly decrease when implementing de-risking strategies.

Keywords

life insurancerisk managementsystematic insurance risks
Type
Original Research Paper
Information
Annals of Actuarial Science , First View , pp. 1 - 19
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of Institute and Faculty of Actuaries

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