A Capital Market for the Risks of Aging Societies

Swiss Re is very good at highlighting the scale of longevity risk on a global basis and the challenges--financial and otherwise--that result from aging societies.

A recent report from Swiss Re highlights the magnitude of the longevity risk challenge and calls for the development of a capital market to deal with the high hurdle of funding longer lives.

Points from the report that highlight the scope of longevity risk include:

  • The aggregate value of defined benefit pension liabilities on a global basis is $23 trillion in U.S. dollars.
  • Each additional year of life expectancy raises pension liabilities by about 4-5 percent.
  • If individuals live just 3 years longer than expected, it is estimated that the cumulative costs of aging could increase by 50 percent of GDP in advanced economies and 25 percent of GDP in developing economies.

Assets held by global insurance companies to address non-life risks totals roughly $2.6 trillion.

In light of the capacity mismatch (insurance company capacity relative to the financial scope of longevity risk), Swiss Re calls for capital market solutions that would augment limited insurance company resources.

Source: Swiss Re

Full Story