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Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers

Biffis, E. and Blake, D. (2014). Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers. North American Actuarial Journal, 18(1), pp. 14-21. doi: 10.1080/10920277.2013.872552

Abstract

The recent activity in pension buyouts and bespoke longevity swaps suggests that a significant process of aggregation of longevity exposures is under way, led by major insurers, investment banks, and buyout firms with the support of leading reinsurers. As regulatory capital charges and limited reinsurance capacity constrain the scope for market growth, there is now an opportunity for institutions that are pooling longevity exposures to issue securities that appeal to capital market investors, thereby broadening the sharing of longevity risk and increasing market capacity. For this to happen, longevity exposures need to be suitably pooled and tranched to maximize diversification benefits offered to investors and to address asymmetric information issues. We argue that a natural way for longevity risk to be transferred is through suitably designed principal-at-risk bonds.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in North American Actuarial Journal on 24 Feb 2014, available online: http://www.tandfonline.com/10.1080/10920277.2013.872552
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/17526
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