Impact of longevity improvements on life insurance companies: a study of Taiwan
Maina, Catherine Wachera
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The whole world has noted an unmatched reduction in the mortality rates and Kenya is no exception. These on-going improvements have brought out the need of mortality forecasting for annuitants as well as pensioners in order to prevent insolvency. This has compelled academicians and actuaries to focus their interest in the particular field of mortality and longevity risk. Appropriate modelling techniques or projected life tables are needed for pricing and reserving. In pa1ticular the use of stochastic models which take into account various risk causes and components and the relevant impact on portfolio results as opposed to deterministic models that were only based on expected present value. This study extends the literature by using the Lee-Carter method to forecast mortality risk for life insurance companies. The main focus of this paper will be to determine the uncertainty associated with future mortality and how it impacts on the overall risk assessment of Life Insurance companies in developing countries. Using the Lee-Carter proposed by Lee-Carter in 1992 to fit mortality rates, I forecasted future mortality trends using the past trends in mortality rates. I then determined the impact that the mortality trends have on life insurance companies. This results show that improved longevity has a big impact on the cash flows of life insurance companies since they affect the Actuarial Present Value.