Back(test) to the Future

(Sep 14, 2009)

Stochastic projections of future mortality are increasingly used not just to set future best-estimates, but also to inform on stress tests such as for ICAs in the UK.  By the time the Solvency II regime comes into force, I expect most major insurers across the EU will be using stochastic models for mortality projections (if they are not already doing so).

Nevertheless, there are still some people who harbour doubts about stochastic models.  One way to address such skepticism is to look at how such models would have performed in predicting the recent past.  This is known as a back-test.  The idea is that we take a long data series on mortality (here the ONS data for males in England & Wales from 1961-2007) and carry…

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Tags: mortality projections, ICA, Solvency II, Lee-Carter, CMIR17, back-test

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