European Actuarial Journal

, Volume 8, Issue 2, pp 257–290 | Cite as

The impact of longevity and investment risk on a portfolio of life insurance liabilities

  • Anna Rita Bacinello
  • Pietro Millossovich
  • An ChenEmail author
Original Research Paper


In this paper we assess the joint impact of biometric and financial risk on the market valuation of life insurance liabilities. We consider a stylized, contingent claim based model of a life insurance company issuing participating contracts and subject to default risk, as pioneered by Briys and de Varenne (Geneva Pap Risk Insur Theory 19(1):53–72, 1994, J Risk Insur 64(4):673–694, 1997), and build on their model by explicitly introducing biometric risk and its components, namely diversifiable and systematic risk. The contracts considered include pure endowments, deferred whole life annuities and guaranteed annuity options. Our results stress the predominance of systematic over diversifiable risk in determining fair participation rates. We investigate the interaction of contract design, market regimes and mortality assumptions, and show that, particularly for lifelong benefits, the choice of the participation rate must be very conservative if longevity improvements are foreseeable.


Solvency Longevity risk Investment risk Fair valuation Participating life insurance 


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Copyright information

© EAJ Association 2018

Authors and Affiliations

  1. 1.Department of Economics, Business, Mathematics and Statistics ‘B. de Finetti’University of TriesteTriesteItaly
  2. 2.Faculty of Mathematics and EconomicsUniversity of UlmUlmGermany
  3. 3.Faculty of Actuarial Science and Insurance, Cass Business SchoolCity, University of LondonLondonUK

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