Longevity risk, i.e. the risk that the insured population in the portfolio live longer than anticipated,
constitutes an important source of risk for life insurers and pension schemes. In order
to quantify this exposure to longevity risk, this thesis attempts to forecast Dutch mortality rates
using two different approaches. Although different approaches are used, both models confirm on
fast mortality improvements for Dutch males. This surprising result could have great impact for
the solvency position of an annuity provider.
With Solvency II in prospective, more attention is drawn to the valuation and management of
pension and insurance liabilities. Therefore, the awareness of longevity risk is increasing and
pension funds and insurers are searching for ways to manage this risk. Longevity derivatives available
in the capital market might provide a good solution. The most common longevity products
currently available in the market will be discussed and tested for its hedge effectiveness.