Mortality and Longevity Risk

Abstract

This chapter examines the insurance and pension-related risks arising from the uncertainty of human life-length, which constitute the most important part of a major class of insurance risks sometimes referred to under the umbrella term biometric risks. Mortality risk results from differences between observed and expected mortality rates in an insured population. By contrast, longevity risk is related to the phenomenon of increasing average human lifespans, and tends to affect government pension systems, defined-benefit pension schemes, and life insurers writing annuities. In this chapter, we give an overview of these risks along with their place in the Solvency II framework, to be followed by a detailed presentation of available quantitative risk assessment methodologies and traditional risk management solutions. Finally, we conclude with a brief introduction to the promising alternative risk management framework of mortality-linked securities.