Dealers tempt capital markets with longevity risk transfer evolution

Some believe that the major obstacles holding back the capital markets from investing in longevity risk have finally been overcome, and this year could see a step change in the volume of deals done and a secondary market in risk transfer instruments emerge. The underlying trends point to a huge market in longevity risk, but many remain cautious about how quickly the potential will be realised.

It is easy to see why dealers might be excited about the longevity risk transfer market. Estimates put the current total global amount of annuity- and pensions-related longevity risk exposure somewhere between $15 trillion (£9 trillion) and $25 trillion. Furthermore, an extension of life expectancy by a single year will add about 3–4% to the present value of a typical defined benefit pension fund’s liabilities, or $450 billion to $1 trillion to total exposures, according to the International