Research On The Development And Pricing Of Longevity Risk Securitization In Chinese Insurance Companies

China has entered an ageing society,and as the process of population ageing continues to deepen,longevity risk is receiving more and more widespread attention.Longevity risk in the context of an ageing population not only puts additional pressure on the social pension insurance system,but also poses a great challenge to the operation of insurance companies,especially life insurance companies operating annuity business.Against the backdrop of low interest rates,longevity risk has become an urgent issue for China’s insurance companies to address.Firstly,it clarifies the difference between longevity risk and ageing in terms of the definition and explains the adverse impact of longevity risk on governments,individuals and insurance companies.In particular,in an era of low interest rates,longevity risk can have a serious impact on the solvency ratio,the provisioning of insurance liability reserves and profitability of insurance companies.Secondly,the fundamentals,types and pricing methods of longevity risk securitization are presented.By analyzing the international experience on the development of longevity risk securitization,the advantages and disadvantages of longevity risk securitization instruments are summarized and compared.Finally,the necessity and feasibility of developing longevity risk securitization for insurance companies in China is argued.Based on the current situation of longevity risk management in Chinese insurance companies,it is analyzed that there are certain restrictions and limitations on traditional longevity risk management tools,which makes it difficult to effectively transfer and diversify systemic and long-term risks.With the continuous improvement of the legal regulatory system of the insurance industry,the liberalization of the use of insurance funds,the implementation of the second phase of the Solvency II project and the optimization of the credit rating system,favorable conditions have been created for the development of longevity risk securitization.Taking longevity bonds as an example,this paper selects the seventh census data and historical population data,and predicts China’s population mortality rate through the LeeCarter mortality model based on population death data by gender and age group.The ARIMA model,a time series model,is used to predict future mortality rates using gender as a perspective.Based on the results of the empirical analysis,it was found that overall population mortality levels have gradually decreased over time.However,the rate of improvement in mortality for females is higher than for males,and the age of risk exposure to longevity is 55 years for males,which is lower than 65 years for females.A survival index can therefore be constructed to improve the efficiency of longevity bond risk transfer by differentiating the ages of male and female groups.According to the operation mechanism and characteristics of longevity risk securitization products,interest-in-risk longevity bonds are designed and a longevity bond pricing formula is given.Finally,the problems in the development of longevity risk securitization for insurance companies in China are summarized.Insufficient data on mortality experience,immature development of the capital market,and an imperfect legal system for special establishment institutions can hinder the development of longevity risk securitization.Corresponding suggestions are also made to address the problems,such as clarifying regulatory bodies and strengthening the information disclosure of insurance companies to enhance investor confidence.