Longevity risk management through Machine Learning: state of the art

Longevity risk management is an area of the life insurance business where the use of Artificial Intelligence is still underdeveloped. The paper retraces the main results of the recent actuarial literature on the topic with the purpose of drawing attention on the potential of Machine Learning in predicting mortality and consequently improving the longevity risk quantification and management, with practical implication on the pricing of life products with long term duration and lifelong guaranteed options embedded in pension contracts or health insurance products. The application of AI methodologies to mortality forecasts improves both fitting and forecasting of the models traditionally used. In particular, the paper presents the Classification and the Regression Tree framework and the Neural Network algorithm applied to mortality data. The results of the literature are discussed focusing on the forecasting performance of the machine learning techniques with respect to the classical model. Finally, a reflect on both the great potentials of the use of Machine Learning in longevity management and also its drawbacks is offered.