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

Pensions Institute Discussion Paper PI-1207

20 Pages Posted: 23 Jun 2020

See all articles by Enrico Biffis

Enrico Biffis

Imperial College Business School

David P. Blake

City, University of London

Date Written: October 25, 2013

Abstract

The recent activity in pension buy-outs and bespoke longevity swaps suggests that a significant process of aggregation of longevity exposures is under way, led by major investment banks and buy-out 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.

JEL Classification: G22

Suggested Citation

Biffis, Enrico and Blake, David P., Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers (October 25, 2013). Pensions Institute Discussion Paper PI-1207, Available at SSRN: https://ssrn.com/abstract=3612781 or http://dx.doi.org/10.2139/ssrn.3612781

Enrico Biffis

Imperial College Business School ( email )

Imperial College London
South Kensington campus
London, SW7 2AZ
United Kingdom

David P. Blake (Contact Author)

City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZX
Great Britain
+44 (0) 20-7040-8600 (Phone)
+44 (0) 20-7040-8881 (Fax)

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