A0392
Title: A strong link between mortality projections and frailty in Lee Carter model
Authors: Maria Carannante - University of Salerno (Italy) [presenting]
Valeria D Amato - University of Salerno (Italy)
Steven Haberman - Cass Business School (United Kingdom)
Massimiliano Menzietti - University di Salerno (Italy)
Abstract: Discrepancies due to the misspecification of the mortality model are known as model risk. Model risk includes shocks caused by period effects that temporarily change the mortality behaviours. Period effects could fit the definition of frailty, according to which is the set of unobservable factors that determines the heterogeneity in mortality. In actuarial literature, frailty is an unobserved variable defined by a non-negative random variable. We propose the use of the Age-specific and Temporal Frailty Lee Carter (ATFLCA) model to estimate the differences in mortality forecasts between the general population and the annuity population. The underlying idea is that the use of frailty parameters in LC models, identified as the co-morbidity status of the individuals, can detect the differences in terms of adverse selection in the life insurance market since people with a lower risk of death are more likely to own life insurance.
