Hedging Longevity Risk through Reinsurance

Gavin Jones and Steven Rimmer

Reinsurance provides a means for insurers to hedge their own longevity risk via the complete transfer of a specified liability. Globally, interest in the transfer of longevity risk increased at a time when reinsurance capacity and availability similarly increased, enabling insurers, most notably in the UK but also developing in markets such as the US, Canada and the Netherlands, to manage exposure. International markets are explored in further detail in Chapters 17–19.

For this reason, our discussion of the major types of reinsurance transactions available to transfer longevity risk has a special significance. Longevity risk transactions were taken up in Chapters 8 and 9 with the description of asset-backed transactions and longevity swaps. In this chapter we shall consider such reinsurance solutions in more detail and explore ways to mitigate counterparty credit exposure for these and provide specific examples of some of the largest transactions that have occurred. The capacity of the market is also explored further, with a focus on capital market solutions that may enable the insurance sector to manage its aggregate exposure and generate returns from its core function of

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