Longevity Risk (2nd Edition)
First published:
ISBN: 9781782723882
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Commercial Aspects of Longevity Reinsurance
Khurram Khan
Foreword
Introduction
Ageing Populations and Changing Demographics
Determinants of Changes in Life Expectancy
Magnitude of the Longevity Issue
Pricing Longevity Risk: Establishing the Base Mortality Level
An Introduction to Credibility Theory
Projecting Future Mortality
Modelling Longevity Risk under a One-Year VaR Framework
Risk Transfer for Pension Schemes
De-Risking Insured Annuity Portfolios
Hedging Longevity Risk through Reinsurance
Commercial Aspects of Longevity Reinsurance
Extreme Mortality Risk as a Natural Hedge?
Capital Markets and Longevity Risk Transfer
Longevity Indices
Longevity Policy Committee
Legal Considerations and Challenges in Longevity Risk Transactions
Pensions and Longevity in the US
Canadian Pensioner Longevity Risk
The Dutch Pensions and Longevity Insurance Market
In this chapter we provide an overview of some of the key commercial features of longevity reinsurance, ranging from the basic mechanics of pricing to features that are not directly price related but nonetheless important. We also explain how some of these features have evolved into broadly accepted market practice. Practical, real-world examples are used to help convey some concepts and to explain their significance. We conclude with an overview at emerging trends and possible future developments in this economically significant global market.
The wider question of whether to reinsure or retain longevity risk is not explicitly addressed in this chapter. However, it is implicitly covered to the extent that this decision is based on pricing and other commercial terms available.
BACKGROUND
Longevity swap reinsurance is now an established, intrinsic part of the pensions and annuity de-risking ecosystem (Figure 11.1).
For individuals in receipt of a defined-benefit pension promise, the risk that they live longer than expected can be passed to insurance companies. This risk is then likely to travel onwards and ultimately reside with multi-line global reinsurers who represent
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