Professor Xiang Hu, the co-director of the base ,has published a collaborative paper titled "Longevity and health risks hedging strategies based on a multivariate duration model" in the Issue 10, 2025 of Systems Engineering - Theory & Practice. 

Abstract: 

With the increase in life expectancy and uncertainty of morbidity rates, how to effectively diversify longevity and health risks has become a major challenge in risk management for insurance companies. In line with the “Notice on Conducting the Pilot Business of Converting Liabilities between Life Insurance and Long-term Care Insurance”, this paper utilizes CHARLS data to estimate and predict the health state transition probabilities of residents. Subsequently, by constructing a multivariate duration model, we identify the optimal product weights for natural hedging of longevity and health risks. Moreover, the hedging effectiveness is evaluated using the volatility and variance reduction ratio of the expected present value of liabilities across the different insurance product portfolios. The following results are concluded. Firstly, mortality rates for both men and women are expected to decline, with significant differences in their disability rates. Secondly, the multivariate duration model facilitates the hedging of risks in insurance product combinations that include both longevity and health risks. Thirdly, the effectiveness of risk hedging varies with the product features, changes in mortality and morbidity rates, and the insured’s gender and age.

Keywords: natural hedging / multivariate duration / longevity risk / health risk

Link: https://sysengi.cjoe.ac.cn/CN/10.12011/SETP2024-0858

Author profile

Xiang Hu, Ph.D. in Economics, Professor, Ph.D. Supervisor, China Associate Actuary. His main research directions are insurance economics, actuarial science and risk management. He serves as a Standing Director of the Actuarial and Risk Management Branch of the Chinese Association for Applied Statistics, a Standing Director of the Quantitative Finance and Insurance Branch of the Chinese Society of Optimization, Overall Planning and Economic Mathematics, and a Director of the China Disaster Insurance and Risk Reduction Branch. He has published more than 30 papers in international journals in the field of insurance actuarial science and risk management, such as ASTIN Bulletin, Insurance: Mathematics and Economics, North American Actuarial Journal, Scandinavian Actuarial Journal, as well as domestic core journals such as Statistical Research and Systems Engineering - Theory & Practice. He has presided over and participated in more than 10 research projects funded by the National Natural Science Foundation of China, the National Social Science Foundation of China, the National Healthcare Security Administration, and the China Insurance Society.

Yang Yu, Ph.D. in Economics, Associate Professor at Zhongnan University of Economics and Law, Master's Supervisor. His main research directions are risk management and insurance, insurance company operation and management, and agricultural insurance. He has presided over or participated in more than 20 scientific research projects, such as the National Social Science Foundation of China, the National Natural Science Foundation of China, the Humanities and Social Sciences Project of the Ministry of Education, the Hubei Provincial Social Science Project, and the Hubei Provincial Soft Science Project, and has published more than 30 academic papers.