GFS LinkedIn
GFS Facebook
GFS Twitter
GFS RSS feed

Insuring against ageing populations

Sunday 28 March 2010 - by Chris Jackson

As dependency ratios increase across Europe due to lower birth rates and increased longevity, a new organisation has been set up to investigate opportunities for a traded market in mortality-related risk

It is estimated that by 2030, there will be 1.8 pensioners for every five workers in Europe and the outlook for the US isn’t much better at 1.6 pensioners.

A report released last year by the World Economic Forum, in collaboration with Mercer and the Organisation for Economic Co-operation and Development, found there was a need to promote instruments to hedge longevity risk as part of a wider strategy to transform pensions and healthcare and to meet the global challenges of ageing populations.

To address these challenges, a collection of UK pension providers and banks have joined forces to create a new organisation called the Life and Longevity Markets Association.

Formed at the start of 2010, the objective for the organisation is to foster the development of a liquid traded market in longevity and mortality-related risk. This is similar to the way in which some insurers insulate against natural disasters, such as hurricanes and earthquakes, by shifting the risk to investors via catastrophe bonds to protect them.

Traditionally longevity has been held by pension funds and transferred in the form of buy-ins and buy-outs to pension insurers, who then underwrite price specific pension fund risk.



However, this has left many private sector pension funds and annuity providers with enormous exposure to longevity.

The LLMA wants to transfer the UK’s €2.5tn ($3.3 tn) pension liability assets to the capital markets to help pension schemes and insurers manage the financial pressure of increased life expectancy. It plans to set standards for the new trading market it wants to promote. To date, almost all longevity capacity has been provided by the insurance and reinsurance markets. However, the LLMA thinks that, given the vast size of global pension liabilities, there is insufficient capacity in these markets to absorb a substantial portion of this risk.

Mercer principal Andrew Ward said: “Longevity risk is a significant issue for UK pensions. Any initiative that aims to make it easier for this to be mitigated should be encouraged.


Article pages: |   1  |  2  |



WHAT DO YOU THINK?
 
Name:
   
Email:
   
Comment:
   
Post as Anonymous
  Display name
   
Please, enter security code
   
 

No comments yet.
INTERVIEWS & FEATURES
What corruption really costs
Heidi Lawson, partner at Chadbourne & Parke LLP, looks at the impact of compliance and corruption on a company's value.

STRAW POLL

Will markets in 2012 have a tougher time than 2011?

Yes

No

Don't know

View results

FIND A REGION world regions