Tools for testing the Solvency Capital Requirement for life insurance

Longevity risk is one of the major risks that an insurance company or a pension fund has to deal with and it is expected that its importance will grow in the near future. In agreement with these considerations, in Solvency II regulation the Standard formula furnished for calculating the Solvency Capital Requirement explicitly considers this kind of risk. According to the new European rules in our paper we suggest a multiperiod approach to evaluate the SCR for longevity risk. We propose a backtesting framework for measuring the consistency of SCR calculations for life insurance policies

Basis risk in solvency capital requirements for longevity risk

The international guidelines of Solvency II prescribe a regulation which should help insurance industry mitigating undesired outcomes arising from the exposure to the systemic risks. In particular, the rules on Solvency Capital Requirements recommend to separately compute them for each risk factor, where for the longevity risk sub-module the Solvency Capital Requirement results by the change in net asset value (NAV) due to a longevity shock which actually assumes a permanent reduction of the mortality rates for all ages by 20%. Nevertheless, the data based on statistics coming from various national longevity indices differ from those deriving from the regulatory assessment of solvency, determining significant underestimations or overestimations: A basis risk comes from a questionable adequacy of the longevity shock. This paper contributes to the discussion on Solvency Capital Requirements by focusing on the main features of the potential basis risk which determines the inappropriate capitalization of insurance companies. Furthermore we analyze the sensitivities of the basis risk to different ages for better assessing the actual risk of insurance portfolios

Disruption of Life Insurance Profitability in the Aftermath of the COVID-19 Pandemic

5noopenLife insurance profitability depends on reliable mortality risk projections and pricing. While the COVID-19 pandemic has caused disruptions around the world, this is a temporary mortality shock likely to dissipate. In this paper, we investigate the long-run impact of COVID-19 on life insurance profitability. Due to the long-run dynamics of the mortality characterised by a decreasing effect of the COVID-19 mortality acceleration, we suggest proactive mortality risk management by implementing prompt premium adjustments, in order to increase the resilience of the business.openCarannante, M.; D’Amato, V.; Fersini, P.; Forte, S.; MelisiCarannante, M.; D’Amato, V.; Fersini, P.; Forte, S.; Melisi

Machine learning due diligence evaluation to increase NPLs profitability transactions on secondary market

In this paper, we contribute to the topic of the non-performing loans (NPLs) business proftability on the secondary market by developing machine learning-based due diligence. In particular, a loan became non-performing when the borrower is unlikely to pay, and we use the ability of the ML algorithms to model complex relationships between predictors and outcome variables, we set up an ad hoc dependent random forest regressor algorithm for projecting the recovery rate of a portfolio of the secured NPLs. Indeed the proftability of the transactions under consideration depends on forecast models of the amount of net repayments expected from receivables and related collection times. Finally, the evaluation approach we provide helps to reduce the ”lemon discount” by pricing the risky component of informational asymmetry between better-informed banks and potential investors in particular for higher quality, collateralised NPLs

Computational framework for longevity risk management

Longevity risk threatens the financial stability of private and government sponsored defined benefit pension systems as well as social security schemes, in an environment already characterized by persistent low interest rates and heightened financial uncertainty. The mortality experience of countries in the industrialized world would suggest a substantial age-time interaction, with the two dominant trends affecting different age groups at different times. From a statistical point of view, this indicates a dependence structure. It is observed that mortality improvements are similar for individuals of contiguous ages (Wills and Sherris, Integrating financial and demographic longevity risk models: an Australian model for financial applications, Discussion Paper PI-0817, 2008). Moreover, considering the dataset by single ages, the correlations between the residuals for adjacent age groups tend to be high (as noted in Denton et al., J Population Econ 18:203-227, 2005). This suggests that there is value in exploring the dependence structure, also across time, in other words the inter-period correlation. In this research, we focus on the projections of mortality rates, contravening the most commonly encountered dependence property which is the "lack of dependence" (Denuit et al., Actuarial theory for dependent risks: measures. Orders and models, Wiley, New York, 2005). By taking into account the presence of dependence across age and time which leads to systematic over-estimation or under-estimation of uncertainty in the estimates (Liu and Braun, J Probability Stat, 813583:15, 2010), the paper analyzes a tailor-made bootstrap methodology for capturing the spatial dependence in deriving confidence intervals for mortality projection rates. We propose a method which leads to a prudent measure of longevity risk, avoiding the structural incompleteness of the ordinary simulation bootstrap methodology which involves the assumption of independence

De-risking strategy: Longevity spread buy-in

The paper proposes a demographic de-risking strategy for a pension provider, to deal with the future uncertainty in longevity over a long time horizon. The innovative idea of a longevity spread buy-in is presented. The formulae for calculating the buy-in premium are proposed in the case of pension plans. The proposal directly impacts the pension provider’s risk management systems and hence can be an important part of the overall approach to risk management. The numerical results, developed under specified stochastic hypotheses for the dynamics of the underlying financial and demographic processes, show how the proposal of the paper can be practically implemented

Public prevention plans to manage climate change and respiratory allergic diseases. Innovative models used in Campania Region (Italy): the twinning Aria implementation and the allergy safe tree: decalogue

In recent years, climate change has been influenced by air pollution, and this destructive combination has justifiably sounded an alarm for nations and many institutional bodies worldwide. Official reports state that the emission of greenhouse gases produced by human activity are growing, and consequently also the average temperature. The World Health Organization (WHO) believes that health effects expected in the future due to climate change will be dramatic, and has invited international groups to investigate potential remedies. A task force has been established by the Italian Society of Allergology, Asthma and Clinical Immunology (SIAAIC), with the aim to actively work on correlation between pollution and climate change. The Task Force provided prevention tools to suggest city leaders how to improve the health conditions of allergic people in public urban parks. The “Allergy Safe Tree Decalogue” suggests the preparation and maintenance of public low allergyimpact greenery. Through the Twinning ARIA project, the Division for the Promotion and Enhancement of Health Innovation Programs of Campania Region (Italy), sought to promote the implementation of the project in the regional Health System. The main objective will be to investigate the current use and usefulness of mobile phone Apps in the management of allergic respiratory disease, through Mobile Airways Sentinel networK (MASK), the Phase 3 of the ARIA initiative, based on the freely available MASK App (the Allergy Diary, Android and iOS platforms). The effects of these prevention activities will be registered and compared with monitoring efforts thanks to the Aerobiology Units, located throughout the Campania area. A joint effort between researchers and public administrations for the implementation of prevention plans coherently with the two models proposed in a specific area, i.e. the Decalogue for public administrations and the MASK Allergy Diary app for individual patients suffering from allergy, will be implemented as a pilot