Longevity Swap

Sponsors of defined benefit pension plans use longevity swaps to hedge longevity risk. A longevity swap is similar to an interest rate swap where floating interest rates are exchanged for fixed interest rates. With a longevity swap, the counter party to the plan sponsor is typically an investment bank.If plan participants live longer than expected, the plan sponsor receives payments from the investment bank. If plan participants die sooner than expected, then the plan sponsor makes payments to the investment bank. Investment banks typically package and sell the longevity risk to institutional investors.

First Longevity Swap for Active Pension Plan Members Enabled by JP Morgan

JP Morgan recently assumed 70 million pounds of longevity risk through a longevity swap that covers the lives of active members of a UK-based defined benefit pension plan . This is the first longevity swap that covers active pension plan participants. Previous deals have focused on retired pension plan members. The longevity swap is based on JP Morgan's LifeMetrics longevity index and it has a 10 year term. The index-based swap is reportedly a better vehicle for dealing with active pension plan...

The World is Very Long on Longevity Risk

Longevity risk is clearly a huge growth market.  One has to wonder, though, where the capacity to address this market opportunity will come from.


Longevity Swaps

The longevity swap market is heating up with many employers / plan sponsors who offer traditional defined benefit pension plans eager to offload longevity-related liabilities to parties who are interested in assuming the risk.

Longevity Market Leaps Ahead with Launch of Life and Longevity Markets Association

A group of banks and insurance companies recently formed a London-based trade group called the Life and Longevity Markets Association (LLMA). The LLMA aims to develop a liquid market for longevity risk that taps into broader capital markets rather than just the balance sheets of certain insurers and reinsurers. A core focus will be on longevity swaps and making the longevity swap transaction process more efficient. Longevity swaps serve as a risk transfer alternative to pension buyouts. The...

Demand for Longevity Risk Picks-up with Lower Volatility

Demand for longevity risk has been returning to the UK pension market. High levels of volatility during the financial crisis deterred many players in the pension buyout market. The return to normalcy in the capital markets may, in fact, be contributing to under-pricing of longevity risk among those who are providing solutions to UK pension plan sponsors who seek to offload longevity-related liabilities. A worthwhile article in the Financial Times discusses the range of options that are...
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