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DISCUSSION PAPER PI-0828

Longevity Risk and Capital Markets: The 2007-2008 Update

Richard McMinn, Jennifer Wang and David Blake

Longevity Three: The Third International Longevity Risk and Capital Markets Solutions
Conference was held in Taipei, Taiwan on 20-21 July 2007. It was hosted by National
Chengchi University.
Mortality improvements around the world are putting more pressure on governments,
pension funds, life insurance companies as well as individuals to deal with the increasing
longevity risk they face. Financial markets, on the other hand, can in principle provide
vehicles to hedge longevity risk effectively. Many new investment products have been
created both by the insurance/reinsurance industry and by the capital markets. Mortality
catastrophe bonds are an example of a successful insurance-linked security. Some new
innovative capital market solutions for transferring longevity risk include survivor bonds,
reverse mortgages, longevity-linked swaps and forward contracts. The aim of the
International Longevity Risk and Capital Markets Solutions Conferences is to bring together
academics and practitioners from all over the world to discuss and analyze these exciting
new developments.
The first conference was held at Cass Business School in London in February 2005. This
conference was prompted by the announcement of the Swiss Re mortality catastrophe bond
in December 2003 and the EIB/BNP/PartnerRe longevity bond in November 2004.
The second conference was held in April 2006 in Chicago and hosted by the Katie School at
Illinois State University.1 In the intervening period, there were further issues of mortality
catastrophe bonds, as well as the release of the Credit Suisse Longevity Index. Life
settlement securitizations were also beginning to take place in the US. In the UK, new life
companies backed by global investment banks and private equity firms were setting up for
the express purpose of buying out the defined benefit pension liabilities of UK corporations.
Goldman Sachs announced it was setting up such a buy-out company itself because the
issue of pension liabilities was beginning to impede its mergers and acquisitions activities.
So there was now clear evidence that a new global capital market in longevity risk
transference was beginning to emerge. However, as with many other economic activities,
not all progress follows a smooth path. The EIB/BNP/PartnerRe longevity bond did not
attract sufficient investor interest and was withdrawn in late 2005. But a great deal was
learned from this about the conditions and requirements needed to launch a successful
capital market.