000			03359cam a22003737 4500
001			w11984
003			NBER
005			20211020112350.0
006			m o d
007			cr cnu||||||||
008			210910s2006 mau fo 000 0 eng d
100	1		_aFriedberg, Leora. _910767
245	1	0	_aLife is Cheap: _bUsing Mortality Bonds to Hedge Aggregate Mortality Risk / _cLeora Friedberg, Anthony Webb.
260			_aCambridge, Mass. _bNational Bureau of Economic Research _c2006.
300			_a1 online resource: _billustrations (black and white);
490	1		_aNBER working paper series _vno. w11984
500			_aJanuary 2006.
520	3		_aUsing the widely-cited Lee-Carter mortality model, we quantify aggregate mortality risk as the risk that the average annuitant lives longer than is predicted by the model, and we conclude that annuity business exposes insurance companies to substantial mortality risk. We calculate that a markup of 3.7% on an annuity premium (or else shareholders' capital equal to 3.7% of the expected present value of annuity payments) would reduce the probability of insolvency resulting from uncertain aggregate mortality trends to 5% and a markup of 5.4% would reduce the probability of insolvency to 1%. Using the same model, we find that a projection scale commonly referred to by the insurance industry underestimates aggregate mortality improvements. Annuities that are priced on that projection scale without any conservative margin appear to be substantially underpriced. Insurance companies could deal with aggregate mortality risk by transferring it to financial markets through mortality-contingent bonds, one of which has recently been offered. We calculate the returns that investors would have obtained on such bonds had they been available over a long period. Using both the Capital and the Consumption Capital Asset Pricing Models, we determine the risk premium that investors would have required on such bonds. At plausible coefficients of risk aversion, annuity providers should be able to hedge aggregate mortality risk via such bonds at a very low cost.
530			_aHardcopy version available to institutional subscribers
538			_aSystem requirements: Adobe [Acrobat] Reader required for PDF files.
538			_aMode of access: World Wide Web.
588	0		_aPrint version record
690		7	_aG12 - Asset Pricing • Trading Volume • Bond Interest Rates _2Journal of Economic Literature class.
690		7	_aG22 - Insurance • Insurance Companies • Actuarial Studies _2Journal of Economic Literature class.
690		7	_aG23 - Non-bank Financial Institutions • Financial Instruments • Institutional Investors _2Journal of Economic Literature class.
690		7	_aJ11 - Demographic Trends, Macroeconomic Effects, and Forecasts _2Journal of Economic Literature class.
690		7	_aJ14 - Economics of the Elderly • Economics of the Handicapped • Non-Labor Market Discrimination _2Journal of Economic Literature class.
700	1		_aWebb, Anthony.
710	2		_aNational Bureau of Economic Research.
830		0	_aWorking Paper Series (National Bureau of Economic Research) _vno. w11984.
856	4	0	_uhttps://www.nber.org/papers/w11984
856			_yAcceso en línea al DOI _uhttp://dx.doi.org/10.3386/w11984
942			_2ddc _cW-PAPER
999			_c336164 _d294726