Valuation and risk management of long-term insurance and pension claims

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Life insurance and pension benefits represent long-term obligations for insurers and pension plan sponsors, as they are often paid out over 20 years in the future. Such long-horizon liabilities expose benefit providers to an intricate combination of risks coming from unexpected changes in market conditions, mortality and longevity trends, and policyholder (or plan member) behaviour. The long-term nature of the liabilities increases uncertainty and requires careful risk management. Insurers and plan sponsors must also satisfy regulatory requirements, which guide and constraint their risk mitigation strategies. The long-term nature of life insurance and pension claims remains understudied in the actuarial literature. My research program has two main objectives. First, I want to provide novel ideas to mitigate long-term risks and improve hedging strategies. Second, I want to develop quantitative tools to better assess and quantify long-horizon liabilities and the risks they carry.***Risk management of long-term claims***Long-term claims can be hedged by constructing a portfolio that replicates the value of their liabilities. As market conditions and other risk factors develop, the value of the liabilities change and the replicating portfolio must be re-balanced to track this evolution. Through my research, I will improve the design of equity-linked life insurance contracts in order to decrease the sensitivity of the liabilities to specific risk factors. In particular, I will study the interaction between the fee structure of variable annuities and the sensitivity of the liabilities to market volatility and unexpected surrenders. These results will guide the design new types of contracts, whose liabilities can be hedged more easily.***Risk quantifying tools for long-term claims***Specific tools are required to analyse and quantify the risks carried by long-term liabilities. In fact, insurers, plan sponsors and regulators usually seek to assess a claim at various time points over its duration. The results of such analysis should lead to decisions that are consistent through time. Stakeholders are also interested in the characteristics of an entire path of a claim's liabilities and of the associated portfolio. For example, pension plan sponsors seek to avoid volatile asset values, as they lead to high costs under new regulations. My objective is to adapt existing risk measures and valuation methods, and to eventually define new ones, in order to appropriately quantify long-term risk. I will also study risk measures that take into account the whole path of a risky process, and use them to recommend long-term investment strategies. ***Through my research program, I will help the pension and insurance industry better understand and manage the risks embedded in long-term claims, which will place them in a better position to fulfill their obligations towards policyholders and retirees.********