arbiter
JournalsAccount

Research on natural hedge strategy of insurance companies based on combination “Variance” effect

Shiqiang Hu et al.

British Actuarial Journal2026https://doi.org/10.1017/s1357321725100342article
AJG 1ABDC B
Weight
0.50

Abstract

Longevity risk significantly impacts the reserve adequacy ratio of annuity issuers, thereby reducing product profitability. Effectively managing this risk has thus become a priority for insurance companies. A natural hedging strategy, which involves balancing longevity risk through an optimised portfolio of life insurance and annuity products, offers a promising solution and has attracted considerable academic attention in recent years. In this study, we construct a realistic portfolio scenario comprising annuities and life insurance policies across various ages and genders. By applying Cholesky decomposition, we transform the portfolio into an uncorrelated linear model. Our objective function minimises the variance in portfolio value changes, allowing us to explore the impact of mortality on longevity risk mitigation through natural hedging. Using actuarial mathematics and the Bayesian MCMC algorithm, we analyse the factors influencing the hedging effectiveness of a portfolio with minimised variance. Empirical findings indicate that the optimal life-to-annuity ratio is influenced by multiple factors, including gender, age, projection period, and forecast horizon. Based on these findings, we recommend that insurance companies adjust their business structures and actively pursue product innovation to enhance longevity risk management.

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1017/s1357321725100342

Or copy a formatted citation

@article{shiqiang2026,
  title        = {{Research on natural hedge strategy of insurance companies based on combination “Variance” effect}},
  author       = {Shiqiang Hu et al.},
  journal      = {British Actuarial Journal},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1017/s1357321725100342},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Research on natural hedge strategy of insurance companies based on combination “Variance” effect

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.