Longevity and mortality risk

Uncertainties about future mortality and life expectancy are proving a problem for pension funds and insurance companies. They are increasingly looking to hedge longevity risk, but the market is lacking instruments for it to hedge against. Last month, in conjunction with Tullett Prebon, Risk hosted a roundtable to discuss the ways of assessing longevity risk and the development of such a market

Risk: How important is longevity risk within life insurance and pensions? How aware are pension funds about the risks within their policies?

Thomas Streiff (TS): Pension funds and insurance companies are well aware of the risks. What to do about the risk is the bigger challenge. Managing longevity is extremely important and it is a significant risk. If you just look at the annuity market place in the US – which is where most of the annuity business is today – it is an extremely large business and has been growing rapidly. In the first half of this year, it experienced 10% growth over last year. The living benefits in annuities are much more complicated than a typical pension annuity, which is a straight life annuity or joint life annuity.

Christopher Murphy (CM): The actuarial profession has been tasked with predicting mortality through the years, but history tells us that it's extremely difficult to get these assumptions right and has highlighted the difficulty in dealing with this issue.

- Longevity and mortality risk (PDF, 2.93MB)