Creating investor demand for longevity

Pension costs for governments and employers in major economies are likely to grow significantly in coming years as the population lives longer. In order to deal with this risk, there needs to be a liquid market in place to trade risks relating to longevity and mortality. The Life and Longevity Markets Association (LLMA), based in London, has been created to promote the trading of longevity risk as an asset class. Swiss Re is a founding member.

Governments and corporations have significant longevity exposures which they will increasingly look to manage. Creating a liquid market for trading longevity risk is a key step towards increasing market capacity for such risk transfers.

Says Christian Mumenthaler, Swiss Re’s Head of Life & Health: “Although longevity capacity within insurance markets already exists, it isn't sufficient to meet the long-term needs of all potential cedents. The long-term development of a longevity investor base and longevity trading instruments will help insurers meet the growing demands of cedents such as pension funds.”

The LLMA is a non-profit organisation founded and funded by current members. They include AXA, Deutsche Bank, JP Morgan, Legal & General, Pension Corporation, Prudential, RBS and Swiss Re. The short-term focus will be on the UK market for longevity and mortality.

Comments Jonathan Graham, Global Head of Pricing at Swiss Re's Asset Management Unit: “We are pleased to have been involved in the foundation of the LLMA. We believe the LLMA brings together the right blend of constituents to start developing the framework needed to support growth of a longevity investor base.”

The aim of the association is to support the development of consistent standards, methodologies and benchmarks to help build a liquid trading market, necessary to support the future demand for longevity protection sought by insurers and pension funds.