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WORKING PAPERS 2015
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Erik Hernæs, Simen Markussen, John Piggott, Knut Røed
December 2015

We exploit a comprehensive restructuring of the early retirement system in Norway in 2011 to examine labor supply responses to pension reform strategies that rely on changes in work incentives (flexibility) or access ages (prescription), respectively. We find that increasing the returns to work is a powerful policy: The removal of an earnings test, implying a doubling of the average net take-home wage, led to an increase in average labor supply by 7 hours per week (30%)  at age 63 and by 8 hours (46%)  at age 64. The responses primarily came at the extensive margin.  

 
Cagri Kumru and John Piggott
November 2015

This paper studies the interaction between capital income taxation and a means tested age pension in the context of an overlapping generations model, calibrated to the UK economy. Recent literature has suggested a rehabilitation of capital income taxation predicated on the idea that a capital income tax may be a partial substitute for the optimal age-based taxes when they are infeasible. This leads naturally to the conjecture that a publicly funded age pension contingent upon holdings of capital or capital income may have a similar effect. We formalize this using a stochastic OLG model with multiple individuals differentiated by labour productivity and pension entitlements. Our results document that the existence of a social insurance program financed from general revenue puts an upward pressure on the optimal capital income tax rate. We also show that there is a negative relation between taper (benefit-reduction) and optimal capital income tax rates. The potential welfare gain from optimizing capital taxation in the presence of a universal retirement transfer system is relatively higher. However, when the transfer is substantially means tested, the gain is lower, because the means test effectively operates as a tax on retirement capital.

 
Rafal Chomik, John Piggott, Alan Woodland, George Kudrna and Cagri Kumru
November 2015

Means testing can balance the need for adequate incomes in retirement with economic efficiency objectives to an extent that is seldom appreciated by policymakers. It is an inexpensive way of ensuring a minimum level of retirement income. The means test may create disincentives to work and save for those wishing to target a certain benefit level, but such distortions are dwarfed by disincentives from much larger earnings related pensions with associated payroll taxes or social insurance premiums.

While some form of targeting exists in most countries, it is rarely exploited to its full potential. Commonly, means testing is deployed in programs that address destitution, such as in the US Supplemental Security Income program. But an appropriately designed resource testing instrument can also be used to reduce the liability of large publicly financed pension or social security promises by excluding the affluent. Policies of this kind are in place in only a few developed economies (e.g., Denmark, Australia, and Chile) but have recently been advocated to address both fiscal stress and inequality issues, notably by the IMF (2014).

This paper summarises means testing design and implementation issues as well as tackling a key criticism relating to the claimed distortions created by means testing. In doing so, we discuss a number of recent analytical and empirical insights based on state of the art macroeconomic modelling.

 

 
George Kudrna and Chung Tran
December 2015

This study quantifies the macroeconomic and welfare effects of three proposed fiscal measures to eliminate Australian government budget deficits and to reduce public debt by 2030, namely: (i) temporary income tax hikes; (ii) temporary consumption tax hikes (increases in the GST rate); and (iii) temporary transfer payment cuts. Our quantitative analysis is based on a computable overlapping generations (OLG) model that is tailored to the Australian economy. The simulation results indicate that all three examined fiscal measures result in favourable long-run macroeconomic and welfare outcomes, but severe adverse consequences during the fiscal consolidation period. Moreover, our results show that cutting transfer payments leads to the worst welfare outcome for all generations currently alive, and especially the poor. Increasing the consumption tax rate results in smaller welfare losses, but compared to raising income taxes, the current poor households pay much larger welfare costs. Overall, the welfare trade-offs between current and future generations, as well as between the rich and poor, highlight key political constraints and point to tough policy choices for the wellbeing of future Australians.

 
Hal Kendig, Kate O’Loughlin, Rafat Hussain, Karla Heese and Lisa Cannon.
December 2015

Attitudes to Intergenerational Equity: Baseline Findings from the Attitudes to Ageing in Australia (AAA) Study. This paper reports preliminary findings and methodology from the 2009-10 baseline data from the national Attitudes to Ageing in Australia (AAA) survey in the context of related national and international literature. It reviews socio-economic and policy developments as possible influences on intergenerational attitudes from the time of the baseline survey to the 2015-16 survey round currently underway. Findings are presented on socio-economic variations in perceptions of the life-long opportunities of the baby boom cohort compared to earlier and later cohorts, the age fairness of government benefits and policy changes, including raising the pension eligibility age. Future research directions are outlined.

 
Cagri S. Kumru, John Piggott and Athanasios C. Thanopoulos.
December 2015

This study analyzes the relative performance in terms of welfare of the current US PAYG system compared to an array of cost equivalent alternative specifications of means-tested pension programs. We conduct our analysis under two different settings. While in the first setting, individuals have standard preferences, in the second setting individuals have self-control preferences. We show that the implications of the reform substantially differs across the two settings.

 
Mengyi Xu, Michael Sherris and Ramona Meyricke
December 2015

Insurers and pension funds provide life annuities and pensions that are impacted by both aggregate mortality improvement and individual mortality heterogeneity. Aggregate population mortality trends have shown significant improvement over long periods of time. Individual mortality heterogeneity arises from differing risk characteristics across individuals. This paper assesses the extent that systematic mortality improvement varies with individual risk characteristics. To do this, a Lee-Carter model is used to assess if mortality improvement varies for groups of individuals with similar risk characteristics along with an individual mortality model that allows for heterogeneity with time trends to assess systematic risk. Data from the U.S. Health and Retirement Study (HRS) is used since this provides longitudinal, individual level data. Our results are highly relevant to life insurers, pension funds and regulators assessing the future impact of improvement trends in mortality on their premiums and liabilities. Mortality trends differ across individuals reflecting the different risk factors and particularly the prevalence of different diseases such as high blood pressure, cancer and heart problems. Models that are based on aggregate population level trends and differing only by gender and age are not adequate in quantifying mortality trends and risks.

 
Yang Shen, Michael Sherris and Jonathan Ziveyi
November 2015

We present a numerical approach to the pricing of guaranteed minimum maturity benefits embedded in variable annuity contracts in the case where the guarantees can be surrendered at any time prior to maturity that improves on current approaches. Surrender charges are important in practice and are imposed as a way of discouraging early termination of variable annuity contracts. We formulate the valuation framework and focus on the surrender option as an American put option pricing problem and derive the corresponding pricing partial differential equation by using hedging arguments and Itô's Lemma. Given the underlying stochastic evolution of the fund, we also present the associated transition density partial differential equation allowing us to develop solutions. An explicit integral expression for the pricing partial differential equation is then presented with the aid of Duhamel's principle. Our analysis is relevant to risk management applications since we derive an expression for the sensitivity of the guarantee fees with respect to changes in the underlying fund value (called the “delta”). We provide algorithms for implementing the integral expressions for the price, the corresponding early exercise boundary and the delta of the surrender option. We quantify and assess the sensitivity of the prices, early exercise boundaries and deltas to changes in the underlying variables including an analysis of the fair insurance fees.

 
Jennifer Alonso-Garcia and Pierre Devolder
November 2015

The notional defined contribution pension scheme combines pay-as-you-go financing and a defined contribution pension formula. The return on contributions is based on an index set by law, such as the growth rate of GDP, average wages, or contribution payments. The volatility of this return compromises the system's pension adequacy and therefore guarantees may be needed. Here we provide a minimum return guarantee to the pension contributions. The price is calculated in a utility indifference framework. We obtain a closed-form solution for a general dependence structure with exponential preferences and in presence of stochastic short interest rates.

 
Bei Lu, Xiaoting Liu and John Piggott
August 2015

Long-term care (LTC) policy in China is in its infancy, and it is highly decentralised. Where policy structures exist, they are poorly resourced. Although China’s demography is still young by developed country standards, it is ageing very rapidly, and by mid-century will have “caught up” with many countries in the developed world with respect to population ageing. LTC policy development, therefore, is becoming a priority in China. We argue that it should be formulated with population ageing as a framework.

Policy designs, which take account of and encourage, informal care provision, will be critical to the fiscally sustainable delivery of LTC. In China, informal care is sometimes seen as very scarce because of the one child policy.  With only one child, it is argued, there will be less informal care offered than in societies with larger families.

This paper uses the recently developed China Health and Retirement Longitudinal Study (CHARLS) dataset to analyse the current patterns of disability and informal care availability. In particular, and contrary to expectation, we find that fertility change is not the main driver for reducing informal care. Education levels, living standards, urbanization and co-residency are much more important. This suggests that current policy, which targets those with one child families, may be misguided, and also that mechanical extrapolations of future demand for care may be misleading. 

 
Robert Holzmann
August 2015

A rising share of individuals are spending at least some part of their working life abroad and acquiring pension rights. While the portability of pensions and other social benefits has received some analytical attention over the recent decade, limited analytical guidance currently exists on the taxation of retirement provisions within a country, and none for the taxation of internationally portable pensions. For both national and international taxation of pensions, the actual taxation approaches are characterized by a high level of diversity, complexity, and inconsistency within and across countries that risk harming labor mobility and creating fiscal unfairness.

The proposed taxation approach for internationally portable pensions mixes notional front-loaded taxation (as the tax due on contributions/savings is deferred) with actual back-loaded taxation as the taxes are due when the benefits are disbursed (in source or residency country) or when accumulated savings effectively leave the country. This approach promises to broadly establish neutrality for international labor mobility decisions, fiscal fairness of tax revenue around retirement provisions between source and residency countries, and bureaucratic efficiency, including consistency with European Union regulations and most double-taxation treaties. 

 
Bernd Genser
August 2015

In the last decades all over the world pension policy reforms have tried to account for the changing demographic and socio-economic framework. An excellent starting point for economic analyses of reform strategies is the Mirrlees Review which argues that pension policy should simultaneously address pension benefit design and the taxation of pensions. We focus on old-age pension taxation and address policy conflicts which come along with international migration of citizens as employees and pensioners. The widely implemented system of deferred income taxation of pensions benefits generates problems of international tax equity when workers who were exempted from income tax on their old-age pension saving emigrate and receive pension benefits in another country. We argue that it is unlikely to solve these problems in double taxation treaties and propose to amend deferred income taxation with the equivalent system of pre-taxed pension benefits. This amendment seems politically viable, since it keeps two attractive features of deferred income taxation, viz. intertemporal neutrality and preferential taxation in comparison to traditional comprehensive income taxation, but also avoids income tax revenue losses, which are perceived as unfair when pensioners emigrate. In order to achieve a higher level of fiscal equity among EU member countries we regard a multilaterally coordinated system of pre-taxed pension benefits taxation as a superior strategy to single-country measures or complicated renegotiations of bilateral double taxation treaties. 

 
Jessica Loke
August 2015

For many countries, age pension expenditure will increase dramatically over the next few decades due to a shift in demographics. In the literature, research and solutions have mostly been concerned with separate financing systems, such as pay-as-you-go, means-testing and superannuation. A broad comparison between the systems has received limited attention. This paper examines the cost and economic welfare of these programs using a stochastic overlapping generations model calibrated to the Australian economy. Including the benchmark, eight different models are evaluated. In addition to reducing fiscal burden, analysis indicates that models with an enforced savings component result in increased social welfare as agents accumulate large asset stockpiles allowing them, in aggregate terms, to consume more with a lower labour supply.

UPDATED NOVEMBER 2015

 
Emily Dabbs and Cagri Kumru
July 2015

Social security plays an essential role in an economy, but if designed incorrectly can distort the labour supply and savings behaviour of individuals in the economy. We explore how well the Australian means-tested pension system provides social insurance by calculating possible welfare gains from changing the settings in the current means-tested pension system. This work has been explored by other researchers both in Australia and in other pension providing economies. However, most research ignores the fact that welfare gains can be found by reducing the cost of the programme. To exclude these trivial welfare gains, this paper fixes the cost of the system. We find that the means-tested pension system is welfare reducing, but does provide a better outcome than an equivalent costing PAYG system. We also find that if the benefit amount is held constant, and hence the cost of the pension programme is allowed to vary, a taper rate of 1.0 is optimal. However, once we fix this cost, a universal benefit scheme provides the best welfare outcome.

 
Xiaodong Fan and Jed De Varo
July 2015

Using NLSY data, we show that job hopping is associated with lower wages for college graduates (but not high school graduates), controlling for ability, labor market experience, and current job tenure. The effect is most pronounced for job tenures less than one year, strongest for early-career workers, and mitigated when job hopping severs matches that were formed during economic downturns. A model of employer learning is proposed in which prior job history signals worker ability. We analyze it both for symmetric and asymmetric employer learning, showing that the equilibrium under asymmetric learning is consistent with the evidence for college graduates.

 
Xiaodong Fan, Ananth Sashadri and Christopher Taber
June 2015

We develop and estimate a life-cycle model in which individuals make decisions about consumption, human capital investment, and labor supply. Retirement arises endogenously as part of the labor supply decision. The model allows for both an endogenous wage process through human capital investment (which is typically assumed exogenous in the retirement literature) and an endogenous retirement decision (which is typically assumed exogenous in the human capital literature). We estimate the model using Indirect Inference to match the life-cycle profiles of wages and hours from the SIPP data. The model replicates the main features of the data-in particular the large increase in wages and small increase in labor supply at the beginning of the life-cycle as well as the small decrease in wages but large decrease in labor supply at the end of the life cycle. We also estimate versions of the model in which human capital is completely exogenous and in which human capital is exogenous conditional on work (learning-by-doing). The endogenous human capital model fits the data the best; the learning-by-doing model is able to fit the overall life-cycle pattern; the exogenous model does not. We find that endogenous labor supply is essential for understanding life-cycle human capital investment and life-cycle human capital investment is essential for understanding life-cycle labor supply.

 
Xiaodong Fan, Hanming Fang and Simen Markussen
June 2015

This paper analyzes the connection between two concurrent trends since 1950: the narrowing and reversal of the educational gender gap and the increased labor force participation rate (LFPR) of married women. We hypothesize that the education production for boys is more adversely affected by a decrease in the mother's time input as a result of increasing employment. Therefore, an increase in the labor force participation rate of married women may narrow and even reverse the educational gender gap in the following generation. We use micro data from the Norwegian registry to directly show that the mother's employment during her children's childhood has an asymmetric effect on the educational achievement of her own sons and daughters. We also document a positive correlation between the educational gender gap in a particular generation and the LFPR of married women in the previous generation at the U.S. state level. We then propose a model that generates a novel prediction about the implications of these asymmetric effects on the mothers' labor supply decisions and find supporting evidence in both the U.S. and Norwegian data.

 
Xiaodong Fan
June 2015

This article documents "sharp retirement" among white male workers in the United States - retirement accompanied by a discontinuous decline in labor supply. It then proposes and estimates a life-cycle model with habit persistence to explain such precipitous decline in labor supply upon retirement as workers quitting "cold turkey" to break the "work habit." Counterfactuals reveal heterogeneous responses from different retirement types. In response to reducing Social Security benefits by 20%, individuals choosing sharp retirement respond mostly on the extensive margin by delaying retirement eight months, while individuals retire smoothly respond mostly on the intensive margin by increasing yearly labor supply and delaying retirement only one month. Comparison shows the work habit model produces more empirically plausible results than other approaches.

 
Xiangling Liu
June 2015

This paper estimates the income elasticity of house prices over a long-term time period of 1991 to 2012 for 144 LGAs in New South Wales of Australia. The income elasticity of house prices is estimated to be 0.69 by multi-factor panel data models accounting for cross-section dependence and serial correlation. The estimate confirms a co-integrated long-run relationship between real house prices and real income. Alternatively, the income elasticity is estimated to be 0.46 using traditional spatial autoregressive models, where the spatial matrix is specified as a distance weighted matrix. The spatial effect of house price in one location is estimated significantly to be 0.84.

 
August 2015

Understanding subjective life expectancy (SLE) is critical for pension design and longevity insurance markets. Yet there are very few studies that focus on this question.

This paper is the first of its kind to analyse subjective life expectancy in China. It draws on a recent longitudinal survey data (two years) in which participants were asked about their life expectancies. 

 
Shang Wu, Anthony Asher, Ramona Meyricke and Susan Thorp
June 2015

Using eight years of data drawn from the records of Australia's Centrelink agency, we describe the income, asset and decumulation patterns of over 10,000 age pensioners. Analysis of this longitudinal data set shows that age pensioners, on average, preserve both financial and residential wealth, consuming conservatively and, ultimately, passing on substantial bequests. While younger households do run down financial wealth early in retirement, older households generally maintain their assessable asset balances, and some even manage to save. The largest falls in assets are linked to changes in household structure due to death or the breakdown of a relationship. So, as in many other developed countries, age pensioners in Australia appear to 'under-consume', holding on to assets, and even building a buffer, well into their later years.

 
Ching Choi and Peng Yu.
May 2015

Population ageing can contribute to a shortage in labour supply. An obvious and popular response to this is to encourage workers to delay their retirement.

While Australian labour force participation rates among older men are showing signs of increase recently after long term declines and rates among women have continued to increase gradually, these rates are still below the Organisation for Economic Co-operation and Development (OECD) average, and for most age groups they are lower than those in the USA and New Zealand and much lower than in South Korea and Japan. Delaying retirement in Australia is therefore a possible policy response to the ageing of the population.

 
Yajing Xu, Michael Sherris and Jonathan Ziveyi
May 2015

Cohort effects have been identified in many countries. However, some mortality models only consider the modelling and projection of age-period effects. Others, that incorporate cohort effects, do not consider cohort specific survival curves that are important for pricing and hedging purposes. In this paper, we consider modelling mortality development on a cohort basis, propose and assess a multi-cohort mortality model in an affine framework. We model the mortality intensity with common factors that affect all the cohorts as well as cohort specific factors that only affect specific cohorts, so that the correlations among cohorts are not perfect. In particular, we consider a three-factor case. The three-factor multi-cohort model is established using Danish male mortality data. The two common factors are extracted using a Kalman Filter algorithm and cohort specific factors are estimated by minimizing the residual calibration error. The calibration results demonstrate the need for cohort effects. The out-of-sample forecast performance of the proposed model, the RH model (age-period-cohort model developed of Renshaw and Haberman (2006)) and the CBD model (age-period model developed of Cairns et al. (2006)) are compared to actual mortality data. The results show that the proposed model produces more consistent estimates of cohort survival curves.

 
Man Chung Fung, Katja Ignatieva and Michael Sherris
April 2015

Developing a liquid longevity market requires reliable and well-designed financial instruments. An index-based longevity swap and a cap are analysed in this paper under a tractable stochastic mortality model. The model is calibrated using Australian mortality data and analytical formulas for prices of longevity derivatives are provided. Hedge effectiveness is examined under a hypothetical life annuity portfolio subject to longevity risk. The paper presents various hedging features exhibited by a longevity swap and a cap based on different assumptions underlying the market price of longevity risk, the term to maturity of hedging instruments, as well as the size of the underlying annuity portfolio. The results are demonstrated to have important implications for the optimal use of longevity hedging instruments with linear and nonlinear payout structures.

 
Changyu Liu and Michael Sherris
April 2015

Pension funds and life insurers offering annuities hold long term liabilities linked to longevity. Risk management of life annuity portfolios aims to immunize or hedge both interest rate and mortality risks. Standard fixed interest duration-convexity hedging must be adapted to allow for both interest rate and longevity risk. We develop an immunization approach along with a delta-gamma based approach allowing for both risks incorporating models for mortality and interest rate risk. The immunization and hedge effectiveness of fixed-income coupon bonds, annuity bonds, as well as longevity bonds, is compared and assessed using simulations of portfolio surplus outcomes for an annuity portfolio. Fixed-income annuity bonds can more effectively match cash flows and provide additional hedge effectiveness over coupon bonds. Longevity bonds, including deferred longevity bonds, reduce risk significantly compared to coupon and annuity bonds, reflecting the long duration of the typical life annuity and the exposure to longevity risk. Longevity bonds are shown to be effective in immunizing surplus over short and long horizons. Delta gamma hedging is shown to only be effective over short horizons.

 
George Kudrna, Chung Tran and Alan Woodland
April 2015

In this paper, we investigate two fiscal policy options to mitigate fiscal pressure arising from an ageing of Australian population: pension cuts or tax hikes. Using a computable overlapping generations model, we find that while the two policy options achieve the same fiscal goal, the macroeconomic and welfare outcomes differ significantly. Future generations prefer pension cuts, whereas current generations prefer tax hikes to finance age-related government spending commitments. Interestingly, taxing consumption or income results in opposing effects on macroeconomic aggregates and welfare across different skill types of households. Increases in the consumption tax rate have positive effects on labour supply, domestic assets and output per capita (similarly to pension cuts), but reduce the welfare of low income households most. Conversely, increases in progressive income or payroll taxes have negative effects on most macroeconomic aggregates but reduce the welfare of low income households least. Our results highlight the intra- and inter-generational conflicts of interest and political constraints when implementing any structural fiscal reforms.

 
George Kudrna
April 2015

The Australian government has recently strengthened the means test of the age pension by raising the income reduction (taper) rate and also introduced labour earnings exemptions from the means testing to encourage labour supply of older Australians. This paper assesses economy-wide implications of further hypothetical changes to the means testing of the age pension that represents Australia's first pension pillar. To this end, we apply an overlapping generations (OLG) model for Australia, with the capacity to investigate changes in the taper and labour earnings exemptions. Our results indicate that further increases in the taper combined with lower income tax rates lead to higher per capita labour supply and assets, as well as to welfare gains in the long run, while labour earnings exemptions have largely positive effects on average labour supply at older ages. Further increases in the taper also generate significant reductions in overall government spending on the pension and, therefore, could be used as an alternative policy to increasing the pension access age.

 
George Kudrna, Chung Tran and Alan Woodland
March 2015

In this paper, we develop a small open economy, overlapping generations model that incorporates non-stationary demographic transition paths to study the dynamic fiscal effects of demographic shift in Australia. Our main results are summarised as follows. First, the demographic shifts towards population ageing lead to a change in the tax base from labor income to capital/asset income and consumption. The effect on income tax revenue is non-linear along the transition paths. Second, the changes in demographic structure cause substantial increases in old-age related spending programs including health, aged care and pensions. Significant adjustments in other government expenditures and taxes will be required to finance the larger old-age related benefits in the future. In particular, the government will have to either cut other expenditures by around 32 percent or increase consumption taxes by 28 percent by 2050 to finance these benefits. Third, the increase in survival rates, rather than the decline in fertility rates, is the main driving factor behind these fiscal costs. Fourth, increases in fertility and immigration are not effective solutions to such budget challenges.

 
Adam W. Shao, Michael Sherris and Joelle H. Fong
March 2015

This paper presents a comprehensive assessment of premiums, reserves and solvency capital requirements for long-term care (LTC) insurance policies using Activities of Daily Living (ADLs) and U.S. data. We compare stand-alone policies, rider benefit policies (LTC insurance combined with whole life insurance), life care annuities (LTC insurance combined with annuities), and shared LTC insurance in terms of premium cost and solvency capital requirements. Premiums and best-estimate reserves for generic LTC insurance policies are determined using Thiele's differential equation. Product features such as the elimination period and the maximum benefit period are compared using a simulation-based model. Solvency capital requirements for longevity risk and disability risk are based
on the Solvency II standard formula. We quantify the extent to which rider benefit policies and life care annuities provide lower solvency capital requirements than stand-alone LTC insurance policies. We show how a maximum benefit period can reduce costs and risks for LTC insurance products.

 
Severine Arnold and Michael Sherris
March 2015

This paper applies cointegration techniques, developed in econometrics to model long-run relationships, to cause-of-death data. We analyze the five main causes of death across five major countries, including USA, Japan, France, England & Wales and Australia. Our analysis provides a better understanding of the long-run equilibrium relationships between the five main causes of death, providing new insights into similarities and differences in trends. The results identify for the first time similarities between countries and genders that are consistent with past studies on the aging process by biologists and demographers. The insights from biological theory on aging are found to be reflected in the cointegrating relations in all of the countries included in the study.

 

 
Yang Chang and Michael Sherris
February 2015

Existing longevity indices commonly use age-based mortality rates or period life expectancy. We propose an alternative cohort-based value index for insurers and pension funds to manage longevity risk. This index is an expected present value of a longevity linked cash flow valued using a specied cohort mortality model and a commonly used interest rate model. Since interest rate and longevity risk are inherent with any longevity linked obligation and interest rate risk can be effectively hedged, this index will provide a better measure of the longevity risk than current indices. Current mortality models are largely age-period based, so we develop a cohort based stochastic mortality model with age-dependent model parameters that provides realistic cohort correlation structures as an underlying basis for the value index. We show how the model improves fitting performance compared to other cohort models, particularly for very old ages, and has a familiar model formulation for financial market participants. We also demonstrate the hedge effectiveness of the index.

 

 
Ermanno Pitacco
February 2015

Long-term care insurance (LTCI) covers are rather recent products, in the framework of health insurance. It follows that specific biometric data are scanty, and pricing problems then arise because of difficulties in the choice of appropriate technical bases. Different benefit structures imply different sensitivity degrees with respect to changes in biometric assumptions. Hence, an accurate sensitivity analysis can help in designing LTCI products, and, in particular, in comparing standalone products to combined products, i.e. packages including LTCI benefits and other lifetime-related benefits.

 

 
Daniel Alai, Zinoviy Landsman and Michael Sherris
January 2015

We generalize model calibration for a multivariate Tweedie distribution to allow for censored observations; estimation is based on the method of moments. The multivariate Tweedie distribution we consider incorporates dependence in a pool of lives via a common stochastic component. Pools may be interpreted in various ways, from nation-wide cohorts to employer-based pension annuity portfolios. In general, the common stochastic component is representative of systematic longevity risk, which is not accounted for in standard life tables and actuarial models used for annuity pricing and reserving.

 

 
Heather Booth, Pilar Rioseco and Heather Crawford
January 2015

Few studies of the association between social networks (SN), social support (SS) and self-rated health (SRH) address the role of demography in determining that association. Yet demography defines social-structural context, differentiates family from friend networks and influences network structures. This study examines the SN-SRH association through cross-cutting analyses of four demographically-defined groups (Males, Females, Partnered, Unpartnered) and three networks (Family, Friend, Group).The findings question the validity of studies assuming only positive causation and underline the importance of demographic differentiation of both population and networks for understanding the SN-SRH association.