Humboldt-Universität zu Berlin >> Wirtschaftswissenschaftliche Fakultät


Subproject B9

Aggregate Mortality Risk and its Impact on the Asset Liability Management of Life Insurance Companies
Head of Project : Prof. Dr. Helmut Gründl

+49 (0)30 2093 5894


+49 (0)30 2093 5616



Humboldt-Universität zu Berlin
School of Business and Economics
CASE – Centre for Applied Statistics & Economics
Dr. Wolfgang Schieren Chair for Insurance and Risk Management
Unter den Linden 6
10099 Berlin






The social and macroeconomic relevance of a sustainable pension system is enormous, especially considering that recent official reports by the German federal statistical office estimate that by the year 2030, 30 percent of the population will be age 65 or older. As a consequence of the aging of society, the German pay-as-you-go state pension scheme will be unable to fulfill its obligations in the long run. Hence, funded schemes offered by private insurance companies are becoming more and more important. However, their financial stability, and thus the stability of pension payments, is endangered by financial and biometric risks. A major component of biometric risk—aggregate mortality risk—is the risk that the future mortality of a certain population will deviate from its predicted value. Since assumptions concerning mortality rates are an integral part of the pricing and risk management of private annuity and life insurance contracts, aggregate mortality risk has the potential to cause insolvency of life insurance companies, with possibly drastic effects on this entire sector of the economy, leading to a very real and critical threat to the sustainability of future old-age provision and the stability of capital markets.
Based on empirical data, the present research project aims at identifying the optimal mix of different instruments for the management of aggregate mortality risk in a shareholder value maximization framework. A key precondition for this analysis is the identification and adequate modeling of aggregate mortality risk. Risk management instruments that will be considered include equity capital, asset allocation, product policy, i.e., the possibility of a natural hedge between life and annuity insurance, reinsurance, and new securitization possibilities for aggregate mortality risks through “insurance-linked securities”. The optimal business policy will be determined from the shareholder’s perspective as well as with a view on the company as a whole, taking the reaction of insurance purchasers to the company’s solvency risk exposure into account. Based on the results of the quantitative analysis, implications for the design of solvency regulations will be investigated. We furthermore aim at developing a measure to assess the degree of an insurance company’s exposure to aggregate mortality risk.

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