01 February 2010
Published in: Longevity - mortality
Association formed to trade longevity risk
A group of banks and insurers have founded the Life and Longevity Markets Association (LLMA) to develop a series of standardized indices that can be used as a global benchmark for trading longevity and mortality risk.
According to Reuters, the risk will be traded as swap structures initially, but as the market develops, longevity bonds will be created to transfer the risk.
The LLMA's founders are Axa, Legal & General, Prudential, Swiss Re, Pension Corporation, Deutsche Bank, J P Morgan and RBS.
The Wall Street Journal reported John Fitzpatrick, a director of the LLMA and a partner at Pension Corp as saying the organization wants to produce "standardized products that will attract investors and to create a liquid market," in a similar way to interest rate swaps and inflation swaps.
In the last three years, only around £19.5bn of longevity risk has moved over from the pension funds to the pension insurers, which is a small amount compared to the total assets in the UK, Fitzpatrick told Reuters. In the next 20 years, the number of retirees is expected to increase by 60% cent, according to Fitzpatrick.
The volume of pension buy-outs and buy-ins in 2009 totalled about £3.4bn and longevity swaps £3.2bn (see IERM, Longevity/mortality, 16 December 2009, "Pension buy-outs and buy-ins total £3.4bn in 2009"). See also: IERM, Longevity/mortality, 27 July 2009, "Allure of longevity swaps grows for pension plans."