The Life & Longevity Markets Association (“LLMA”) and Institute and Faculty of Actuaries today calls for proposals for a research project to develop an industry benchmark for understanding Longevity Basis Risk.
The project is to develop a methodology to quantify the basis risk that arises from using population level mortality indices for managing the longevity risk in pension benefits or annuitant liabilities.
We expect this work to be beneficial to a wide variety of organisations and individuals, including pension schemes and their members as well as insurance companies which write annuity business. These and other institutions which are exposed to, or would like to invest in, longevity risk will gain from a new methodology for quantifying risk related to longevity.
The project will offer a high-profile opportunity to the successful party to apply original research to basis risk and in doing so help enable longevity risk transfer to the capital markets.
Dan Ryan spokesperson for the LLMA comments:
“The LLMA believes that this project will help to develop market clarity and support the LLMA’s brief to grow this marketplace. It is a high profile opportunity for the successful party to provide a practical solution to a real industry problem and in doing so greatly enhance opportunities for longevity risk transfer to the capital markets.”
Sarah Mathieson, Policy Manager at The Institute and Faculty of Actuaries concludes:
“In the context of a longevity hedge, longevity basis risk is the potential mismatch between the behaviour of the longevity hedge and the portfolio of pensioners or annuitants being hedged, when the hedge has been based on a generic mortality index rather than the actual pool of lives in the pension scheme or annuity book. This project aims to develop a methodology to quantify the risk, which we believe will benefit a range of parties involved in pensions, from scheme sponsors to scheme members, as well as writers of annuity business.”
Responses to the tender should be received by 15th April 2013 with the research work to be completed within 12-18m. The successful party will be accountable to the Longevity Basis Risk Working Group, who will closely monitor the progress of the research to ensure that it continues to lead to the desired outcome.
The Institute and Faculty of Actuaries
+44 (0)77255 58551
About the LLMA
The Life and Longevity Markets Association (‘LLMA’) is a non-profit organisation founded and funded by members, these being AVIVA, AXA, Deutsche Bank, J.P. Morgan, Legal & General, Morgan Stanley, Munich Re, Pension Corporation, Prudential PLC, RBS and Swiss Re. It aims to promote the development of a liquid traded market in longevity and mortality-related risk. The association supports the development of consistent standards, methodologies and benchmarks to help build a liquid trading market, of the type that exists for Insurance Linked Securities (ILS), and other large trend risks like interest rate and inflation.
About the Institute and Faculty of Actuaries
The Institute and Faculty of Actuaries represents its members interests and regulates those members for the benefit of the outside world. The Institute and Faculty of Actuaries is the chartered professional body for actuaries whose growing membership is based in the UK (60%) and internationally (40%).