Securitization of Mortality Risks in Life Annuities

The purpose of this paper is to study mortality-based securities, such as mortality bonds and swaps, and to price the proposed mortality securities. We focus on individual annuity data, although some of the modeling techniques could be applied to other lines of annuity or life insurance. Date: March 30, 2004. A very early version was presented at a seminar at the University of Waterloo, Department of Actuarial Science and Statistics. Several seminar participants, most notably Sven Sinclair and Harry Panjer, provided helpful comments and suggestions. We presented this version at the Asia–Pacific Risk and Insurance Association 2003 annual meeting in Bangkok, the 38th Actuarial Research Conference at the University of Michigan and the 2003 annual meeting of the American Risk and Insurance Association in Denver. We appreciate the helpful comments and suggestions from participants at these meetings. We thank Edward L. Robbins for very helpful comments on an early draft. We are especially grateful to Thomas P. Edwalds of Munich American Reassurance Company and his colleagues (Jeff Katz, Gary Lange, Rebecca Cahill, and Yauwah Lam). They provided us with considerable help, correcting some errors and providing very useful comments. 1