Study On Longevity Risk Hedging Strategies Of Insurance Companies

Since the reform and opening up,China's economy has developed rapidly and the life quality and the medical condition of the people gradually improved,which result in a significant increase in the life expectancy of the population.With the extension of life expectancy,the individuals,the government pension system and the commercial pension institutions would face a longevity risk.For individuals,the increase in life expectancy will make people ready to retire cannot meet the requirements of the post retirement life and face the risk of lack of pension and quality of life.Individuals can transfer this risk to an insurance company by buying commercial insurance.For business insurance companies who operate pension insurance,the longevity risk is a systematic risk which cannot be diversified.Because the traditional risk management method is not suitable for the increasingly longevity risk management,the risk of longevity is more and more serious to insurance companies.In this way,the insurance companies need to find a solution suitable for the management of longevity risk and efficient for reducing the risk of longevity.The natural hedging strategy is an important longevity risk management method.This strategy tries to use new or existing life products to hedge annuity insurance products which contain the loss of longevity risk.For example,annuity insurance products due to the actual life expectancy and there is a loss of life expectancy,but the life insurance products will therefore increase the income from a late death.Based on these,the insurance companies can use the life annuity products and the life insurance products to construct a portfolio to manage the longevity risk.The natural hedging strategy is less affected by the external factors,and has many other advantages such as simplicity,low cost and easy to operate.From the discussion of the connotation and current situation of the aging population and the longevity risk,this thesis evaluates the longevity risk of our country by using a dynamic mortality model,and then studies the construction of the natural hedge model.At the same time,this thesis analyzes the problems existing in the risk management of longevity,and tries to put forward some methods and suggestions to solve the problems.