COVID-19 in a social reinsurance framework: Forewarned is forearmed

The crisis caused by COVID-19 revealed the global unpreparedness to handle the impact of a pandemic. In this paper, we present a statistical analysis of the data related to the COVID-19 outbreak in China, specifically the infection speed, death and fatality rates in Hubei province. By fitting distributions of these quantities we design a parametric reinsurance contract whose trigger and cap are based on the probability distributions of the infection speed, death and fatality rates. In particular, fitting the distribution for the infection speed and death rates we provide a measure of the effectiveness of a state's action during an epidemic, and propose a reinsurance contract as a supplement to a state's social insurance to alleviate financial costs

Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?

The aim of this article is twofold: to establish the connection between the 'Contribution Asset' (CA) and the 'Hidden Asset' (HA) and to determine whether using either of them to compile the Actuarial Balance (AB) sheet in the Pay-As-You-Go (PAYG) pension system will provide a reliable solvency indicator. With these aims in mind, we develop a model based on those first put forward by Settergren and Mikula (2005) and Boado-Penas et al. (2008) to obtain the analytical properties of the CA and to confirm its soundness as a measure of the assets of a PAYG scheme. Our model also enables us to explore whether, and to what extent, the HA can be considered a second alternative measure of the assets for PAYG schemes. The main theoretical finding is that, despite their very different natures, the HA and the CA may nearly coincide at the limit when the interest rate of the financial market approaches the growth of the covered wage bill from above, but the HA supplies a solvency indicator which is not always consistent with the system's financial health.</p

The Continuous Sample of Working Lives: improving its representativeness

This paper studies the representativeness of the Continuous Sample of Working Lives (CSWL), a set of anonymized microdata containing information on individuals from Spanish Social Security records. We examine several CSWL waves (2005-2013) and show that it is not representative for the population with a pension income. We then develop a methodology to draw a large dataset from the CSWL that is much more representative of the retired population in terms of pension type, gender and age. This procedure also makes it possible for users to choose between goodness of fit and subsample size. In order to illustrate the practical significance of our methodology, the paper also contains an application in which we generate a large subsample distribution from the 2010 CSWL. The results are striking: with a very small reduction in the size of the original CSWL, we significantly reduce errors in estimating pension expenditure for 2010, with a p value greater or equal to 0.999

Automatic Balancing Mechanisms for Pay-As-You-Go Pension Finance: Do They Actually Work?

In pay-as-you go pension systems, automatic balancing mechanisms (ABMs) are designed to face adverse demographic and economic changes. In this respect, ABMs can be defined as a set of pre-determined measures established by law to be applied immediately as required according to an indicator that reflects the financial health of the system. The purpose of ABMs is, through successive application, to restore the sustainability of the pay-as-you-go pension system. First, adjustments can be made in benefit levels to reflect changes in life expectancy; second, adjustments can be made through the revaluation of the contribution basis of earlier years; and third, adjustments may occur through the revaluation of pensions in payment. Countries such as Finland, Portugal, Germany, Sweden and Japan, amongst others, have already legislated and included different types of mechanisms into their pension systems. This chapter aims to explore the different mechanisms that have been recently set up and analyse their effectiveness in terms of financial sustainability and adequacy of benefits.</p