Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

CRO Forum advocates longevity risk transfer to the capital markets


The Chief Risk Officers (CRO) Forum, a professional group of chief risk officers and risk managers from large insurance and reinsurance companies, has published a position paper which advocates the capital markets becoming an active player in longevity risk transfer.

As we’ve seen over the past year, the longevity risk transfer market is picking up and becoming higher in profile. With increasing longevity expectations of populations, most insurers who have any longevity risk on their books have been looking at ways to minimise or ideally transfer that risk to someone else.

The capital markets is the ideal candidate to be the counterparty for longevity risk transfer transactions. Swiss Re’s recently announced Kortis Capital Ltd. transaction seeks to transfer longevity risks to capital markets investors using a catastrophe bond type structure. If successful and investor appetite is high, this transaction could herald a rush of deals as other re/insurers who carry significant longevity risks try to utilise similar structures to off load their risks.

The CRO Forum say in a press release that their paper; ‘finds that increased life expectancy will challenge society to provide adequate income to all individuals through old age. Consequently, demand for longevity risk mitigation solutions is growing, and life insurers should play an important role. However, their current capacity to take longevity risk onto their balance sheets is small relative to global longevity risk exposure. Developing solutions to transfer longevity risk to the capital markets can help. All stakeholders will benefit from better awareness of the risk, access to reliable population data to help model and quantify the risk, and regulations which promote a rigorous risk-based capital framework for both insurers and defined benefit pension funds.

Download the full paper from the CRO Forum here (in PDF format).

You can read more from Artemis on longevity risk transfer.

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