Model Risk, Mortality Heterogeneity and Implications for Solvency and Tail Risk

Michael Sherris and Qiming Zhou

Mortality models used to assess longevity risk and retirement funding have been extended to stochastic models with trends and systematic risk. Systematic risk cannot be readily diversified in an insurance pool or pension fund. It is an important factor in assessing solvency and highlighting the tail risk in longevity insurance and pension products. This paper overviews recent developments in models for mortality heterogeneity and uses a model calibrated to both population mortality and health condition data to consider the impact of model risk and heterogeneity in assessing solvency and tail risk for longevity risk products.