Our fellows across the pond are making a move to shift longevity risk to capital markets. The Life and Longevity Markets Association is a group of banks, insurers and pension experts working to develop a "series of standardised indices that can be used as a global benchmark for trading longevity and mortality risk," Reuters reports.
Companies participating in the new association include AXA, J.P. Morgan, U.K.-based Prudential plc, Deutsche Bank and RBS.
Initially, risk will be traded as swap structures, with a goal to create longevity bonds in the future, similar to catastrophe bonds in the insurance-linked securities market. The Association wants to transfer ?2 trillion, or approximately $3.3 trillion, in pension liability assets to capital markets to "help pension schemes and insurers manage the financial pressure of increased life expectancy," the news agency writes.
John Fitzpatrick, a director of the LLMA and a partner at member-company Pension Corp, told Reuters the last three years has seen ?19.5 billion of longevity risk transferred from pension funds to pension insurers.
"The existing transactions between (re)insurers and the capital markets are relatively small. The association wants to build capacity in the capital markets and reinsurance sector in order to handle the likely increase in demand coming forward from longevity risk," he said.
The Association targeted the insurance-linked securities market because of its non-correlation to the fixed income market. It will focus on pension-related longevity rather than life settlements, and will increase its scope beyond the United Kingdom as the market grows, Reuters writes.