Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Is the longevity risk securitization market about to take off?


According to an article published on Dow Jones, and available here via the Wall Street Journal, the market for longevity risk transfer through the issuance of bonds or securitization may be about to come out of hibernation. The article says that two longevity bonds are currently being marketed to investors by banks in recent weeks and that one of these forthcoming longevity risk transfer deals is due to close at some point in March.

We’ve reached out to contacts to see what we can glean and so far all we’ve heard is confirmation that some tentative deal terms were put in front of certain investors at the start of the year. We’re told that an iterative process is likely to have been followed, if there are transactions being marketed, due to the need to get investors comfortable with the term of a longevity risk deal and the requirement for liquidity. It’s likely that marketing of any securitized longevity risk bond would involve a feedback loop with investors encouraged to explain to the bookrunners what it is that would give them the confidence to invest in a deal.

So, nothing concrete yet but we’ll update you if any details of transactions become available. The article cites investor sources and says that one of the deals in the market is from Dutch insurer Aegon, who was involved in the largest swap of longevity risk which involved a bond issuance in early 2012.

Investors who the article quotes suggest that the time might be right for the longevity bond market to come back to life as low yields on many asset classes persist and investors are hunting for returns. It’s likely that insurance-linked securities investors would be attracted to any longevity securitization at this time as the catastrophe bond market has gone a little quiet at the start of 2013.

Longevity risk impacts large pension funds and life insurers when the life expectancy of lives they cover increases and could result in them paying benefits for longer. In order to hedge this risk a number of structures emerged, including the longevity swap which is one of the most common, The longevity securitization, where longevity trend risk is packaged like a cat bond and sold to investors in note form, is an area of the market expected to grow but to date only one real ILS type deal has been done, Swiss Re’s Kortis Capital Ltd. The Aegon deal had a bond sale to the capital markets underlying the transaction which swapped €12 billion of liabilities, but this structure differs to Kortis. The most actively used method of longevity risk transfer to date remains longevity reinsurance, of which there have been some large transactions in recent months.

Whatever form new longevity risk securitizations or bonds take they will be welcomed by investors at this time as long as they address all of their concerns. The article says that three banks are actively looking for mandates for these bond, Societe Generale, Morgan Stanley and Deutsche Bank, but no representatives would comment regarding any deals in the market.

Whether there are two longevity risk ILS or bond deals in the market or not, it’s a good time to raise the issue again as these deals will come when the terms and conditions are right. We’ll keep you updated if we hear anything more about these deals.

We’ve written about the need for a capital market solution to longevity risk before. A few of our articles on this subject can be found below.

A liquid capital market in longevity risk will be vital: Swiss Re – December 2012

Investors must get involved in longevity risk transfer as insurance capacity insufficient – August 2012

Governments should stimulate market in longevity risk – June 2012

A capital market for longevity risk has to be created – April 2012

Longevity risk; a 4,000 pound gorilla destined for the capital markets – August 2011

Governments, capital markets and re/insurers need to tackle longevity risks – January 2011

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.