Linking to longevity
The low correlation between mortality and returns on most asset classes means that US-traded life settlement policies are a marketable underlying. But while trading longevity risk is set to rise among institutions, some structured products providers are unwilling to offer mortality-linked investments to retail investors. By Amanda Lee
A report by US investment research firm Bernstein Research predicts that the life settlement market in the US (see box page 26) could grow from $13 billion as of 2004 to $160 billion by 2030, possibly even sooner. The report also estimates that life settlements can provide an internal rate of return of between 9% and 13%.
For financial institutions, including structured products providers, the fact that these contracts are traded in a secondary market means there is sufficient liquidity to tap
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