Quantifying mortality risk in small defined-benefit pension schemes

A risk of small defined-benefit pension schemes is that there are too few members to eliminate idiosyncratic mortality risk, that is there are too few members to effectively pool mortality risk. This means that when there are few members in the scheme, there is an increased risk of the liability value deviating significantly from the expected liability value, as compared to a large scheme. We quantify this risk through examining the coefficient of variation of a scheme's liability value relative to its expected value. We examine how the coefficient of variation varies with the number of members and find that, even with a few hundred members in the scheme, idiosyncratic mortality risk may still be significant. Using a stochastic mortality model reduces the idiosyncratic mortality risk but at the cost of increasing the overall mortality risk in the scheme. Next we quantify the amount of the mortality risk concentrated in the executive section of the scheme, where the executives receive a benefit that is higher than the non-executive benefit. We use the Euler capital allocation principle to allocate the total standard deviation of the liability value between the executive and non-executive sections. We find that the proportion of the standard deviation allocated to the executive section is higher than is suggested by an allocation based on the members' benefit amounts. While the results are sensitive to the choice of mortality model, they do suggest that the mortality risk of the scheme should be monitored and managed within the sections of a scheme, and not only on a scheme-wide basis

Asymmetric information, self-selection and pricing of insurance contracts: the simple no-claims case

This paper presents an optional bonus-malus contract based on a pri-ori risk classification of the underlying insurance contract. By inducing self-selection, the purchase of the bonus-malus contract can be used as a screening device. This gives an even better pricing performance than both an experience rating scheme and a classical no-claims bonus system. An application to the Danish automobile insurance market is considered

The Devil is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis

In the aftermath of the 2007-2008 financial crisis, there has been criticism of mathematics and the mathematical models used by the finance industry. We answer these criticisms through a discussion of some of the actuarial models used in the pricing of credit derivatives. As an example, we focus in particular on the Gaussian copula model and its drawbacks. To put this discussion into its proper context, we give a synopsis of the financial crisis and a brief introduction to some of the common credit derivatives and highlight the difficulties in valuing some of them. We also take a closer look at the risk management issues in part of the insurance industry that came to light during the financial crisis. As a backdrop to this, we recount the events that took place at American International Group during the financial crisis. Finally, through our paper we hope to bring to the attention of a broad actuarial readership some "lessons (to be) learned” or "events not to be forgotten

Opening Online Academic Development Programmes to International Perspectives and Dialogue

Professional development for academic staff in higher education is receiving increasing attention. The focus has been on providing an opportunity for academic staff to enhance their effectiveness in meeting changing needs and roles in higher education. Inherent in this changing role has been meeting the challenges of technology-infused learning environments available for use today. This chapter explores the potential of online academic development programmes to increase collaboration and dialogue amongst participants through integrating opportunities for online interaction. By spotlighting two particular postgraduate programmes in Ireland and Australia, the chapter reports on present experiences of integrating international guests and considers the future of connecting people and technology for academic development in higher education