With an ageing population, slowing birth rate and an increasing rise in life expectancy as well as impending accounting standards which will encourage the need to show their capital adequacy, Japanese insurers and pension schemes are expected to face growing longevity risks in the coming years, according to this article in Life & Pension Risk Magazine. A recent study forecasts that in 50 years over 40% of the Japanese population will be over 65 years old, this will make managing longevity risk vital and will likely push Japan towards developing a market in instruments such as longevity swaps.
The article quotes Niklaus Hilti, director and head of insurance-linked securities at Credit Suisse, who said that “There is a very natural need and demand for these transactions from Japan” and that the demand is only beginning but will grow over the next few years.
It will be interesting to see which way Japan goes with regards to addressing longevity risks, whether a market for longevity swaps could be developed or whether longevity securitization might be more appealing under the incoming risk based capital accounting regulations that are expected to be implemented.
It will definitely be worth keeping your eye on Japan to spot the opportunities as the market for longevity risk transfer develops.