Life & Longevity Markets Association proposes longevity index framework

by Artemis on August 23, 2010

The Life & Longevity Markets Association (LLMA) has proposed a standardises framework for designing, building and producing longevity indices. The proposal aims to provide the longevity risk transfer market with a set of standards to facilitate easier longevity risk transfer transactions and increase transparency.

The framework is not supposed to be prescriptive of the way you create transactions, rather it is supposed to be a guiding set of standards that transactions should be anchored to.

The LLMA want this framework to help promote its aim of encouraging a liquid trading market in longevity risk transfer. Standardisation should encourage consistency and transparency, making it easier for first time market entrants to get deals launched.

The LLMA longevity index framework has been designed to facilitate creation of indices for populations of countries, populations of annuitants, populations of pensioners and customised pools of lives. The framework will not be limited to these indices and others may well emerge if it is adopted.

Guy Coughlan, Chair of the LLMA Technical Committee, spokesperson for the LLMA and Managing Director, J.P. Morgan said “The LLMA proposal is a significant milestone in the creation of a robust and efficient longevity marketplace. We believe that the availability of a standardised approach to longevity indices – both public and private – will help to encourage the development of a healthy, liquid traded market in longevity risk transfer, which is the ultimate aim of the Association. This standardisation will foster much-needed consistency in this area, providing greater comfort to first-time counterparties and improved efficiency in the execution of these transactions. We look forward to receiving feedback from market participants on this proposed framework”.

The LLMA is seeking feedback from market participants on their proposal by 4th October 2010. All feedback should be sent to consultations@llma.org before that date.

Standardisation is definitely the way forward for the longevity risk transfer market as it grows. It will help new entrants to the market and established issuers as the time to get a transaction to market would be significantly reduced, and the process simpler, if a standard set of indices and guidelines exist.

The full proposal and consultation document can be downloaded here.

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