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IA|BE Chair: Methods of pooling mortality risk

Number of CPD Points: 
Novotel - Brussels

Would you be willing to leave less to your heirs in order to have a higher income while you are alive? This is the motivation behind pooling mortality risk. They allow the participants to mitigate the risk of out-living their assets, at the cost of giving up some of their value upon death.

In the past, the popular choice that indirectly pooled mortality risk was the life annuity contract . However, this means a lack of investment freedom for the annuitant. It also means that the insurance company bears the investment and longevity risk, and puts up the solvency capital, which ultimately increases costs for the customer.

By more directly pooling their mortality risk, customers can avoid much of the hidden costs of a life annuity. The downside is that they are exposed to the volatility of the deaths in their pool. However, products such as Mercer LifetimePlus suggest that there is a market for pooling mortality risk and allowing the pool to bear the uncertainty.

In the lecture, the main ways of pooling mortality risk are given and their advantages and disadvantages are examined. Their implications for longevity risk management and the ways in which they might be integrated into a flexible product with customer choice are considered.

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