Modelling a Dutch Pension Fund’s Capital Requirement for Longevity Risk

Polman, Fabian M. and Krijgsman, Cees and Dajani, Karma and Hemminga, Marcus A. (2017): Modelling a Dutch Pension Fund’s Capital Requirement for Longevity Risk. Published in: Magazine De Actuaris (The Actuary) No. 24-5 (4 May 2017): pp. 38-39.

Abstract

Longevity risk is the risk arising from uncertainty in the prediction of future mortality. This risk must be faced by pension funds. The legislation for Dutch pension funds prescribes that the pension funds need to keep in reserve a certain level of capital for this risk. De Nederlandsche Bank (DNB), the regulator of the legislation, suggests a method for calculating this capital requirement. In this paper an alternative method is developed, that provides a better insight in the current risk. Moreover, it turns out that the resulting capital requirement from our method is less than half of the capital requirement calculated using the method suggested by DNB.

• Item Type: MPRA Paper
• Language: English
• Keywords: Longevity risk, capital requirement for longevity risk, Dutch pension fund, stochastic mortality, Monte Carlo simulations
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; J - Labor and Demographic Economics > J1 - Demographic Economics > J11 - Demographic Trends, Macroeconomic Effects, and Forecasts

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