The Impact of Longevity Risks on Variable Annuities

This thesis aims to project the impact of longevity risks on variable annuities in the insurer’s and retirees’ point of view. Mortality rates are fitted and forecasted using the Lee-Carter
method, with data from the Human Mortality Database. Data at older ages are extended using the Kannisto method. Different sources of longevity risks can be distinguished under this
model, with specific focus on the macro-longevity risk. Before the longevity risk analysis, the mortality impact is incorporated in variable annuities through biometric returns in assumed
interest rate. For the sake of completeness, micro-longevity risk is analyzed with different scenarios of pension fund pools and sizes. Thereafter, the focus is on macro-longevity risk, with
different risk components distinguished within this risk. Two approaches are used to quantify these uncertainties, the stressed-trend method and the value-at-risk framework. Results are
compared using obtained life expectancy values and variable annuity payouts.