Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers

David Blake and Enrico Biffs

MPRA Paper from University Library of Munich, Germany

Abstract: The recent activity in pension buyouts and bespoke longevity swaps suggests that a significant process of aggregation of longevity exposures is under way, led by major investment banks and buyout firms with the support of leading reinsurers. As regulatory capital charges and limited reinsurance capacity constrain the scope for market growth, there is now an opportunity for institutions that are pooling longevity exposures to issue securities that appeal to capital market investors, thereby broadening the sharing of longevity risk and increasing market capacity. For this to happen, longevity exposures need to be suitably pooled and tranched to maximize diversification benefits offered to investors and to address asymmetric information issues. We argue that a natural way for longevity risk to be transferred is through suitably designed principal-at-risk bonds.

Keywords: capital markets; longevity risk; pooling; tranching; asymmetric information (search for similar items in EconPapers)
JEL-codes: D47 D82 G14 G22 G23 (search for similar items in EconPapers)
Date: 2012-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:44680

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