The cost of uncertainty

(Mar 10, 2010)

In an earlier blog I wrote about how stochastic volatility in run-off increases with age. This applies when you exactly know (or think you know) the current and future mortality rates.

Of course, in practice we are not certain about current or future rates.  What impact does this have?  A good way of exploring this is to use a stochastic projection model.  Table 1 shows the annuity factors at key ages using a best-estimate projection and a typical ICA or Solvency II stress test (50th and 99.5th percentiles, respectively).

Table 1. Annuity factors and relative capital increase for level annuity when moving from 50th to 99.5th percentile. ONS data for mortality of males in England & Wales, P-spline age-period…

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Tags: mortality projections, ICA, Solvency II, matching

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