Human Survival at Older Ages and the Implications for Longevity Bond Pricing

Leslie Mayhew and David Smith

North American Actuarial Journal, 2011, vol. 15, issue 2, 248-265

Abstract: Governments are concerned about the future of pension plans, for which increasing longevity is judged to be an important risk to their future viability. We focus on human survival at age 65, the starting age point for many pension products. Using a simple model, we link basic measures of life expectancy to the shape of the human survival function and consider its various forms. The model is then used as the basis for investigating actual survival in England and Wales. We find that life expectancy is increasing at a faster rate than at any time in history, with no evidence of this trend slowing or any upper age limit. With interest growing in the use of longevity bonds as a way to transfer longevity risks from pension providers to the capital markets, we seek to understand how longevity drift affects pension liabilities based on mortality rates at the point of annuitization, versus what actually happens as a cohort ages. The main findings are that longevity bonds are an effective hedge against longevity risk; however, it is not only the oldest old that are driving risk, but also more 65-year-olds reaching less extreme ages such as 80. In addition, we find that the possibility of future inflation and interest rates could be as an important a risk to annuities as longevity itself.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/10920277.2011.10597620 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uaajxx:v:15:y:2011:i:2:p:248-265

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uaaj20

DOI: 10.1080/10920277.2011.10597620

Access Statistics for this article

North American Actuarial Journal is currently edited by Kathryn Baker

More articles in North American Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().