Financial Demography: Mastering the Financial Consequences of Life Contingencies.

Frans Willekens, Netherlands Interdisciplinary Demographic Institute (NIDI)

In 1982, Nathan Keyfitz and Andrei Rogers published contingency calculations that bridged the historical divide between demography and actuarial sciences and paved the way to a better management of financial risks at the level of cohorts and individuals. This paper extends the work by Keyfitz and Rogers and presents a biographic actuarial model that combines life history models with a large variety of insurance schemes. The life course is approached as a sequence of state occupancies and state transitions (events), and is modelled by a discrete-state continuous-time Markov process. Premiums and insurance benefits are linked to transitions and state occupancies. The equivalence principle is used to determine premiums that cover insurance benefits in complex life histories. An example from disability insurance illustrates the model. Financial demography is a new field that responds to the challenges that contemporary and envisaged demographic changes cause to public and personal finance.