Compound Joint-life Annuity Frailty Modeling

Abstract

Grouping insureds in clusters such as joint-life annuities imposes statistical dependence. In this paper, we propose the shared compound frailty approach in collective valuation of joint-life annuity products where most applications have been in bio-statistics. The positive stable compound process used entails the frailty mixing distribution with the weighted exponential, generalized exponential and weighted Weibull as the base force of mortality distributions calibrated on a large Kenyan insurer joint-life last-survivor dataset. The findings shows that the positive stable generalized exponential model addresses time-varying heterogeneity effects positively and negatively associated with dependence.