Longevity Risk (2nd Edition)
First published:
ISBN: 9781782723882
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Legal Considerations and Challenges in Longevity Risk Transactions
Jennifer Donohue
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
This chapter is an extensive revision of the one that appeared in the first edition, as a result of the paradigm shift in the understanding and execution of longevity risk transactions since 2011. For some sceptics the early transactions, largely featuring bespoke longevity swaps with the occasional synthetic buy-in, were largely exploratory and occasionally moving forwards from the known frontiers. Those who engaged in longevity risk transactions were viewed as operating in an uncharted landscape. However, the subsequent six years have seen significant change and development. In May 2017 Prudential Financial provided a US$1.2 billion longevity risk solution, following hard on the heels of Legal & General’s US$900 million longevity swap and reinsurance solution for a UK defined-benefit scheme. These followed five years of a steady and significant increase in the numbers of sizeable transactions executed.
In this chapter we address the legal issues that are central to longevity risk transfer. We shall consider what the primary sources of longevity risk are, including in the life settlement market. We shall also consider how participants manage longevity risk and the types of
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