Natural Hedging of Life and Annuity Mortality Risks
نویسندگان
چکیده
The values of life insurance and annuity liabilities move in opposite directions in response to a change in the underlying mortality. Natural hedging utilizes this to stabilize aggregate liability cash flows. Our study shows empirical evidence that insurers who utilize natural hedging also charge lower premiums than otherwise similar insurers. This indicates that insurers who are able to utilize natural hedging have a competitive advantage. In addition, we show how a mortality swap might be used to provide the benefits of natural hedging to a firm that writes only one of the lines of business. Department of Risk Management & Insurance Georgia State University P.O. Box 4036 Atlanta, GA 30302-4036 USA Telephone: 1 404 651-4854 Fax: 1 404 651-4219 email: [email protected] email: [email protected] Date: July 29, 2004. 1 2 SAMUEL H. COX AND YIJIA LIN
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