Improving the quantification of longevity risk using scenarios.

Over the past decades, the life expectancy of people in the developed world has increased significantly. Although living longer can be a positive achievement for society, it brings challenges to fund retirement benefits, in particular for insurance companies and pension funds. Increases in life expectancy have therefore resulted in an increased attention among academics, policymakers and industry researchers, leading to the development of different models to quantify longevity risk. Particular attention is devoted to the determination of the solvency buffer, which is the amount of capital that pension funds or insurers need to hold in addition to the best-estimate value of their liabilities. In this article we compare different methods to determine the solvency buffer for longevity risk, and provide a technique to challenge the results of these methods.