Commercial Aspects of Longevity Reinsurance

Khurram Khan

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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