Fitting and Forecasting Mortality Rates for Egypt Applying the Lee-Carter Model

Abstract

This paper aims at using an extrapolative stochastic projection model namely "Lee-Carter Model” which is applied on mortality experience of general population in the context of Egypt, fitting the model to historical data, then estimating the model's parameters using Singular Value Decomposition (SVD), finally forecasting mortality trends in an Auto-Regressive Integrated Moving Average (ARIMA) framework. As regards to the longevity risk, I consider the possibility of changing the annuity benefits by relating the benefits to the updated mortality forecasts based on experienced mortality taking factors age and time into consideration therefore calculating the expected present values for pricing and reserving life annuities where the effect of mortality improvement is especially obvious in life annuity products.

The paper findings can benefit the actuary to deal with longevity risk in pricing & valuation of annuity products by measuring life expectancy where actuaries used mortality forecasts for cash flow projections and the assessment of premiums and reserves in life insurance and pension annuities. Setting the appropriate assumptions used in pricing & reserving which affecting the financial position of the annuity providers, as omission or miscalculation of the longevity risk could lead to many financial issues.