Graduation of term assurance data using frailty approach

Frailty models have been used in literature to account for heterogeneity among insureds in-terms of mortality. In this article, we compare the gamma and the non-central gamma as frailty distributions with the exponentiated exponential and exponentiated Weibull as baseline hazards. We adopt a fully Bayesian approach to calibrate the baselines based on crude mortality rates from a major Kenyan insurer. Comparing the gamma-exponentiated Weibull with the non-central gamma-exponentiated Weibull models shows that the non-central gamma provides a good fit to the real life data-set and is therefore recommended for valuation.</jats:p

Effect of the different levels of drying on phosphate adsorption and desorption by some Kenyan soils

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The Reciprocal Generalized Inverse Gaussian Frailty with Application in Life Annuity Business

Aims: As shown in literature, several authors have adopted various individual frailty mixing distributions as a way of dealing with possible heterogeneity due to unobserved covariates in a group of insurers. This research contribution is to generalize the frailty mixing distribution to nest other classes of frailty distributions not in literature and apply the proposed distributions in valuation of life annuity business.&#x0D; Methodology: A simulation study is done to assess the performance of the aforementioned models. The baseline parameters is estimated using Bayesian Inference and a better model is suggested for valuation of life annuity business.&#x0D; Results: As a result of generalizing the frailty some new classes of frailty distributions are constructed such as; the Reciprocal Inverse Gaussian Frailty, the Inverse Gamma Frailty, the Harmonic Frailty and the Positive Hyperbolic Frailty.&#x0D; From the simulation study, the proposed new frailty models shows that ignoring frailty leads to an underestimation of future residual lifetime since the survival curve shifts to the right when heterogeneity is accounted for. This is consistent with frailty literature.&#x0D; The Reciprocal Inverse Gaussian model closely represents the Association of Kenya Insurers graduated rates with a slight increase in survival due to longevity risk.&#x0D; Conclusion: The proposed new frailty models show an increase in the insurers expected liability when unobserved heterogeneity is accounted for. This is consistent with frailty literature and thus can be applied to avoid underestimating the insurer’s liability in the context of life annuity business.&#x0D; The RIG model as proposed in estimating future liability by directly adjusting the AKI mortality rates shows an increase in longevity risk. The extent of heterogeneity of the insured group determines the level of risk. The RIG frailties should be considered for multivariate cases where the insureds are clustered in groups.</jats:p

Graduation of term assurance data using frailty approach

Frailty models have been used in literature to account for heterogeneity among insureds in-terms of mortality. In this article, we compare the gamma and the non-central gamma as frailty distributions with the exponentiated exponential and exponentiated Weibull as baseline hazards. We adopt a fully Bayesian approach to calibrate the baselines based on crude mortality rates from a major Kenyan insurer. Comparing the gamma-exponentiated Weibull with the non-central gamma-exponentiated Weibull models shows that the non-central gamma provides a good fit to the real life data-set and is therefore recommended for valuation.</jats:p