Life insurance profitability depends on reliable mortality risk projections and pricing. While the COVID-19 pandemic has caused disruptions around the world, this is a temporary mortality shock likely to dissipate. In this paper, we investigate the long-run impact of COVID-19 on life insurance profitability. Due to the long-run dynamics of the mortality characterised by a decreasing effect of the COVID-19 mortality acceleration, we suggest proactive mortality risk management by implementing prompt premium adjustments, in order to increase the resilience of the business.

In the actuarial literature, frailty is defined to be the unobserved variable which encompasses all the factors affecting human mortality other than gender and age. Heterogeneity in individual frailty can play a significant role in population mortality dynamics. In the present paper, we identify the main latent factors that explain the frailty component, in order to clarify its role in mortality projections. We show, using longitudinal survey data, that frailty is mainly due to co-morbidities that impact on the process of deterioration in terms of the human body’s physiological capacity. Accordingly, we provide frailty-based stochastic models for projecting mortality based on the Lee–Carter family of models. We propose several versions that consider frailty both as an age-dependent and a time-dependent factor and also combining the interaction effects of age and time in comparison with the general level of mortality, and compare the resulting mortality projections using data from England.

Firms, insurance companies, pension funds, and broadly speaking the international community focus already their engagement activities on environmental, social and governance (ESG) issues since it can create long-term shareholder value, by determining the future performance of markets. Indeed ESG criteria adoption has multiple positive dimensions and outcomes, meanwhile, the analysis of the risks related to sustainability is already uncommon. In this paper, we provide a formal theoretical valuation system on ESG reputation, i.e., the reputation or the gain in confidence produced by possession of a positive reputation compared to the lack of one when the ESG criteria are integrated into the business analysis. In particular, we model the ESG reputational risk by means of the paradigms of behavioural finance. We define the ESG reputational risk by subjective probabilities framed in a probability function based on preferences set of the potential trustees, such as actors or objects in whom others may seek to place trust. Furthermore, we compute the sustainability premium or discount, which measures the economic impact of the good or bad reputation due to ESG investments. One of the approach’s main features is the flexibility coming from the opportunity to assign a given analytical form of the utility function describing the trustor’s preferences. From an operational point of view, our results should encourage the firms and other institutions to accurately evaluate the reputational risks related to ESG investments.