Department of Economics and Business Economics

Measuring Longevity Risk: An Application to the Royal Canadian Mounted Police Pension Plan

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Measuring Longevity Risk : An Application to the Royal Canadian Mounted Police Pension Plan. / Boyer, Martin M.; Mejza, Joanna; Stentoft, Lars.

In: Risk Management and Insurance Review, Vol. 17, No. 1, 2014, p. 37-59.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Harvard

Boyer, MM, Mejza, J & Stentoft, L 2014, 'Measuring Longevity Risk: An Application to the Royal Canadian Mounted Police Pension Plan', Risk Management and Insurance Review, vol. 17, no. 1, pp. 37-59. https://doi.org/10.1111/rmir.12018

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Author

Boyer, Martin M. ; Mejza, Joanna ; Stentoft, Lars. / Measuring Longevity Risk : An Application to the Royal Canadian Mounted Police Pension Plan. In: Risk Management and Insurance Review. 2014 ; Vol. 17, No. 1. pp. 37-59.

Bibtex

@article{d610698c7800488e97f0977a3c5f2428,
title = "Measuring Longevity Risk: An Application to the Royal Canadian Mounted Police Pension Plan",
abstract = "An employer that sets up a defined benefit pension plan promises to periodically pay a certain sum to each participant starting at some future date and continuing until death. Although both the future beneficiary and the employer can be asked to finance the plan throughout the beneficiary's career, any shortcoming of funds in the future is often the employer's responsibility. It is therefore essential for the employer to be able to predict with a high degree of confidence the total amount that will be required to cover its future pension obligations. Applying mortality forecasting models to the case of the Royal Canadian Mounted Police pension plan, we illustrate the importance of mortality forecasting to value a pension fund's actuarial liabilities. As future survival rates are uncertain, pensioners may live longer than expected. We find that such longevity risk represents approximately 2.8 percent of the total liability ascribable to retired pensioners (as measured by the relative value at risk at the 95th percentile) and 2.5 percent of the total liabilities ascribable to current regular contributors. Longevity risk compounds the model risk associated with not knowing what is the true mortality model, and we estimate that model risk represents approximately 3.2 percent of total liabilities. The compounded longevity risk therefore represents almost 6 percent of the pension plan's total liabilities",
keywords = "Defined benefit pension plans, Research, Pension trusts, Police, Actuaries, Mortality, Beneficiaries, Longevity",
author = "Boyer, {Martin M.} and Joanna Mejza and Lars Stentoft",
note = "Campus adgang til artiklen / Campus access to the article",
year = "2014",
doi = "10.1111/rmir.12018",
language = "English",
volume = "17",
pages = "37--59",
journal = "Risk Management and Insurance Review",
issn = "1098-1616",
publisher = "Wiley-Blackwell Publishing, Inc.",
number = "1",

}

RIS

TY - JOUR

T1 - Measuring Longevity Risk

T2 - An Application to the Royal Canadian Mounted Police Pension Plan

AU - Boyer, Martin M.

AU - Mejza, Joanna

AU - Stentoft, Lars

N1 - Campus adgang til artiklen / Campus access to the article

PY - 2014

Y1 - 2014

N2 - An employer that sets up a defined benefit pension plan promises to periodically pay a certain sum to each participant starting at some future date and continuing until death. Although both the future beneficiary and the employer can be asked to finance the plan throughout the beneficiary's career, any shortcoming of funds in the future is often the employer's responsibility. It is therefore essential for the employer to be able to predict with a high degree of confidence the total amount that will be required to cover its future pension obligations. Applying mortality forecasting models to the case of the Royal Canadian Mounted Police pension plan, we illustrate the importance of mortality forecasting to value a pension fund's actuarial liabilities. As future survival rates are uncertain, pensioners may live longer than expected. We find that such longevity risk represents approximately 2.8 percent of the total liability ascribable to retired pensioners (as measured by the relative value at risk at the 95th percentile) and 2.5 percent of the total liabilities ascribable to current regular contributors. Longevity risk compounds the model risk associated with not knowing what is the true mortality model, and we estimate that model risk represents approximately 3.2 percent of total liabilities. The compounded longevity risk therefore represents almost 6 percent of the pension plan's total liabilities

AB - An employer that sets up a defined benefit pension plan promises to periodically pay a certain sum to each participant starting at some future date and continuing until death. Although both the future beneficiary and the employer can be asked to finance the plan throughout the beneficiary's career, any shortcoming of funds in the future is often the employer's responsibility. It is therefore essential for the employer to be able to predict with a high degree of confidence the total amount that will be required to cover its future pension obligations. Applying mortality forecasting models to the case of the Royal Canadian Mounted Police pension plan, we illustrate the importance of mortality forecasting to value a pension fund's actuarial liabilities. As future survival rates are uncertain, pensioners may live longer than expected. We find that such longevity risk represents approximately 2.8 percent of the total liability ascribable to retired pensioners (as measured by the relative value at risk at the 95th percentile) and 2.5 percent of the total liabilities ascribable to current regular contributors. Longevity risk compounds the model risk associated with not knowing what is the true mortality model, and we estimate that model risk represents approximately 3.2 percent of total liabilities. The compounded longevity risk therefore represents almost 6 percent of the pension plan's total liabilities

KW - Defined benefit pension plans

KW - Research

KW - Pension trusts

KW - Police

KW - Actuaries

KW - Mortality

KW - Beneficiaries

KW - Longevity

U2 - 10.1111/rmir.12018

DO - 10.1111/rmir.12018

M3 - Journal article

VL - 17

SP - 37

EP - 59

JO - Risk Management and Insurance Review

JF - Risk Management and Insurance Review

SN - 1098-1616

IS - 1

ER -