Impact of the Longevity Risk on Permanent Life Annuity in the Context of IFRS 17

Longevity risk – the risk that policyholders outlive expected mortality projections – poses a significant challenge to the financial sustainability of pension insurance. This paper investigates the valuation of permanent life annuities under IFRS 17, the accounting standard that fundamentally reshaped actuarial reporting in 2023. We propose a robust mortality model that integrates a selection factor to more accurately capture the idiosyncratic longevity of annuity holders. Furthermore, the study quantifies the Risk Adjustment (RA) for non-financial risks using the Cost of Capital (CoC) method, aligning with Solvency II valuation principles. Our results demonstrate how precise longevity modelling influences the Contractual Service Margin (CSM) and overall liability adequacy. These findings offer critical insights for insurers aiming to balance product stability with the rigorous transparency requirements of IFRS 17.