Longevity, Health Risk and Retirement Timing in Life Insurance

Specialeforsvar ved Amalie Friis Pedersen

Titel: Longevity, Health Risk and Retirement Timing in Life Insurance

Abstract: Longevity is one of the biggest risks facing the life insurance industry today. Based on the model for the mortality intensity published by the Danish FSA we study risks associated with longevity. We forecast life expectancy in Denmark and consider different criteria for retirement timing.
By considering a three-state Markov model, we find that time spent as disabled is more sensitive to increasing lifetime improvements than time spent as active if the disability is modelled without a calendar time effect. Implementing lifetime improvements in both the disability- and the mortality intensity implies that increasing life expectancy primarily contributes to time spent as active.
To improve old-age mortality, we add a frailty variable in the Danish FSA model and find that as long as the disability intensity remains constant over calendar time, further improvements in mortality primarily result in more years spent as disabled. The study suggests that health risk has to be taken into account when timing retirement if one wants to preserve the quality of life in retirement.

Vejleder: Mogens Steffensen
Censor:   Magnus Tor Ry Hessler, Danica Pension