Longevity securitization attracting more attention in the U.S. – S&P

by Artemis on January 13, 2012

As well as the roundtable discussion on catastrophe bonds which we covered earlier here, Standard & Poor’s also held a roundtable discussion on the topic of longevity securitization recently. Again the full publication of the discussion can be downloaded by subscribers to S&P’s Global Credit Portal or purchased from S&P here. With the growing longevity risk transfer market in the UK (which we discussed here recently) interest is being heightened in the United States as well and longevity securitization is the area that really shows potential.

Market dynamics between the UK and the U.S. are different meaning that while the UK market has seen a growing number of pension de-risking transactions (such as longevity swaps and pension scheme buy-ins/outs) the U.S. market has been more focused on mortality catastrophe bonds (and also longevity risk securitization we would say, such as in the Kortis Capital transaction).

The panelists who took part in the S&P roundtable discussed both sides of this market and concluded that there is significant growth potential in both. They cautioned that these are not easy transactions and that time to market for a deal could take up to a year. Another concern is around counterparty risk and also the illiquid nature of some of these transactions. Illiquidity is always a topic in any discussion on longevity risk transfer and efforts are still ongoing in the market to find a way to facilitate trading of longevity risk in derivative or securitized note form.

The panel discusses a number of issues affecting the sector but remain positive and see the UK market continuing to accelerate as more pension schemes seek to de-risk while interest will continue to grow in the U.S. which will inevitably lead to deal flow from pension schemes domiciled there. Their is heightened interest in the asset class from both insurance-linked security investors and those who might see investing in longevity as a type of hedge to other investments they hold (eg. mortality). The participants both suggest that significant growth will be seen in the longevity risk transfer and longevity securitization markets over the next year.

Access the full report from S&P here.

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