Adequacy test for longevity risk reserves for a portfolio of model annuities from Pillar II of the Slovak pension system

The paper gives a concise description of Pillar II of the Slovak pension system and describes a model whole-life annuity with a guarantee of payment if death occurs in the first seven years of the contract. For the given model portfolio the values of the annuity payment and the reserve in the fourth and tenth years of insurance are calculated deterministically. The paper focuses on analysing the financial risk relating to longevity which the life insurer takes on by selling such products. Longevity risk assumes that the mortality of those insured will be lower than that expected for the population in the mortality tables used. For the given portfolio a mortality risk margin is applied in the form of a percentage reduction in the mortality rates and a reduction of age in the mortality tables. In respect of this risk reserve adequacy testing is carried out for the given portfolio and the results produced are compared using graphs.