TY - JOUR T1 - Quantifying the Mortality–Longevity Offset JF - Special Issues SP - 99 LP - 107 VL - 2013 IS - 1 AU - Peter Nakada AU - Chris Hornsby Y1 - 2013/09/21 UR - https://pm-research.com/content/2013/1/99.abstract N2 - Life insurance and annuities have opposite sensitivity to changes in life expectancy. If life expectancy increases, life insurers will experience a loss on their annuity portfolios because they must make benefit payments for longer. However, increased life expectancy will have an opposite effect on the value of life insurance portfolios—they will gain in value because they will receive premiums for longer, and the death benefit payment will be further in the future, reducing its present value. To be sure, there are many reasons why this is an imperfect offset—the main reason being that the average age of a life insurance policyholder is typically much younger than the average age of an annuitant.Many life insurers understand this offset in concept, but have a difficult time factoring it into business decisions because of the lack of ability to quantify this offset. This article introduces a robust framework for quantifying the offset between mortality and longevity risk, and illustrates how it can be applied to assessing the risk of a longevity risk transfer transaction. ER -