What — and when — is a 1:200 event?

(Nov 12, 2015)

The concept of a "one in two hundred" (1:200) event over a one-year time horizon is well established as a reserving standard for insurance in several territories: the ICA in the United Kingdom, the SST in Switzerland and the forthcoming Solvency II standard for the entire European Union.  The basic idea is simple: insurers must be capitalised to withstand 99.5% of events which could arise over the coming year.  Other territories use concepts like conditional tail expectations.

There is room for debate as to what constitutes a 1:200 event, however.  For example, Figure 1 shows the elevated mortality caused by the 1918 influenza pandemic, which for many people would be a starting point for calibrating a modern…

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Tags: Spanish influenza pandemic, mortality shocks, longevity shocks, Solvency II, ICA, SST, VaR, value-at-risk

Benchmarking VaR for longevity trend risk

(Mar 1, 2013)

I recently wrote about an objective approach to setting the value-at-risk capital for longevity trend risk.  This approach is documented in Richards, Currie & Ritchie (2012), which was recently presented to a meeting of actuaries in Edinburgh.  One of the topics which came up during the discussion was how the answers from the value-at-risk (VaR) method squared with how life offices actually change their projection bases in practice.  In particular, commentators were interested in what might be regarded as a "real world" example of a sudden change in projection basis, and how this might compare with the results from the VaR framework.

As it happens, we do have an historical example to call upon, and furthermore…

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Tags: mortality improvements, mortality projections, VaR, CMI, value-at-risk

VaR-iation by age

(Jan 12, 2013)

During the public discussions of our paper on value-at-risk for longevity trend risk, one commentator asked for a fuller presentation of VaR capital requirements by age. In the paper, as with our introductory overview, we used age 70 as a representative average age of an annuity portfolio.  However, annuity portfolios contain lives spanning a wide range of ages, so it is useful to examine how capital requirement might vary.  Figure 1 shows the VaR longevity-trend capital requirement by age for four different models.

Figure 1. 99.5% VaR capital requirement for longevity trend risk in a level pension paid to a single-life male annuitant. Temporary annuity to age 105, discounted at 3% per annum.  The capital…

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Tags: VaR, value-at-risk, model risk

VaR for longevity trend risk

(Dec 5, 2012)

Last month Stephen, Iain and Gavin presented their paper on putting longevity trend risk into a one-year, value-at-risk (VaR) framework.  The presentations were made to audiences of actuaries in Edinburgh and London, and the video of the London debate is now available online.  Copies of the opening speech and slides are available for download on the right.

On a related note, InsuranceERM has also published an article on the VaR framework, which is summarised in an earlier posting.

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Tags: longevity trend risk, VaR, value-at-risk

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