Testing Actuarial Assumptions With Realistic Life Insurance Data

2026-02-12 · Source: HackerNoon · Field: Finance & Economics — Insurance & Risk Management, Capital Markets & Investment Management, Banking & Financial Services · Depth: Advanced, long

Summary

This analysis investigates seven phenomenological assumptions crucial for actuarial modeling of life insurance with profit participation, using realistic life insurance data. The study numerically tests these assumptions against a model over a range of nine parameters, varying initial unrealized gains (UG0/BV0: -0.10, 0.05, 0.20) and guaranteed premium payments (π0: 0.95, 1, 1.05). Key assumptions cover the geometric run-off of liabilities, the linear change in declared benefits over time, the constancy of the surplus fund to liability provision ratio (SF0/LP0), the estimation of surrender gains, and correlations between discount factors and declared benefits. The analysis also simplifies the gross surplus calculation by assuming deterministic technical interest rates and predictable returns on assets. Numerical evidence, presented through figures, generally supports these assumptions, often within a 0.5% tolerance of the initial market value, despite some approximations and deviations at later projection times.

Key takeaway

For actuarial modelers and risk managers developing or validating life insurance models, you should rigorously test your underlying phenomenological assumptions against realistic data across a wide parameter space. Focus on the sensitivity of your model to variations in initial unrealized gains and premium payment scales, and ensure that key relationships like liability run-off and declared benefit dynamics hold within acceptable error margins, even if approximations are necessary for later projection times.

Key insights

Actuarial assumptions for life insurance models can be numerically validated using realistic data and parameter variations.

Principles

• Assumptions may hold approximately, within defined tolerance.
• Geometric run-off can be controlled by a duration factor.
• Management rules should ensure long-term constancy of key ratios.

Method

Numerical experiments vary initial unrealized gains and premium payments to test actuarial assumptions against a model, considering a 0.5% tolerance of initial market value for fulfillment.

In practice

• Use UG0/BV0 and π0 to test asset-liability relationships.
• Calculate liability duration 'h' using formula (4.45).
• Evaluate E[SFt]/E[LPt] for time-homogeneity.

Topics

• Actuarial Assumptions
• Life Insurance Modeling
• Profit Participation
• Numerical Validation
• Cost of Guarantee

Best for: Research Scientist, Data Scientist, Domain Expert

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Editorial summary, takeaway, and curation by AIssential. Original article published by HackerNoon.