Next Article in Journal
Macroprudential Insurance Regulation: A Swiss Case Study
Previous Article in Journal
Predicting Human Mortality: Quantitative Evaluation of Four Stochastic Models
Article Menu

Export Article

Open AccessArticle
Risks 2016, 4(4), 46; doi:10.3390/risks4040046

Deflation Risk and Implications for Life Insurers

Department of Statistics and Actuarial Science, Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6, Canada
Academic Editor: Mogens Steffensen
Received: 26 August 2016 / Revised: 25 November 2016 / Accepted: 28 November 2016 / Published: 3 December 2016
View Full-Text   |   Download PDF [1195 KB, uploaded 3 December 2016]   |  

Abstract

Life insurers are exposed to deflation risk: falling prices could lead to insufficient investment returns, and inflation-indexed protections could make insurers vulnerable to deflation. In this spirit, this paper proposes a market-based methodology for measuring deflation risk based on a discrete framework: the latter accounts for the real interest rate, the inflation index level, its conditional variance, and the expected inflation rate. US inflation data are then used to estimate the model and show the importance of deflation risk. Specifically, the distribution of a fictitious life insurer’s future payments is investigated. We find that the proposed inflation model yields higher risk measures than the ones obtained using competing models, stressing the need for dynamic and market-consistent inflation modelling in the life insurance industry. View Full-Text
Keywords: deflation risk; life insurance; risk management; unscented Kalman filter; inflation caps and floors deflation risk; life insurance; risk management; unscented Kalman filter; inflation caps and floors
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

Scifeed alert for new publications

Never miss any articles matching your research from any publisher
  • Get alerts for new papers matching your research
  • Find out the new papers from selected authors
  • Updated daily for 49'000+ journals and 6000+ publishers
  • Define your Scifeed now

SciFeed Share & Cite This Article

MDPI and ACS Style

Bégin, J.-F. Deflation Risk and Implications for Life Insurers. Risks 2016, 4, 46.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top