The Life & Longevity Markets Association (LLMA) announced a milestone in their plans for the development of a market in tradeable longevity and mortality risk instruments yesterday with the news that they were to take ownership of the LifeMetrics Index which was created by J.P. Morgan.
All LifeMetrics Index data will now become available to the LLMA to benefit all participants in the marketplace. It’s taken J.P. Morgan four years to get the LifeMetrics Index to its current stage, it provides a toolkit for measuring and managing longevity and mortality risk enabling risks to be aggregated and measured in a standardised format. The LifeMetric indices currently cover England and Wales, the U.S., Germany and the Netherlands.
The LLMA have been working on their own index, as well as standardised documentation for use in longevity and mortality risk transfer transactions, they expect to continue that work and will combine LifeMetrics with their own technology. They hope to produce an LLMA set of indices later this year which could become a reference set of indices for hedging transactions.
David Epstein, Executive Director and Head of Longevity Structuring at J.P. Morgan (and Deputy Chair of the LLMA Technical Committee), commented on the LifeMetrics transfer: “The work of the LLMA is bringing consensus and standardisation to reference indices in the market, and, as a member of the Association, we have made a commitment to working towards a liquid and publicly traded longevity market in the UK, and ultimately globally. We felt that now was the right time to back that commitment by giving the whole market the benefit of the work that we have done at J.P. Morgan in this area.”
It’s apparent that an index which becomes an industry standard is far more valuable to the longevity and mortality risk transfer markets than one which is solely owned by a market participant. It should lead to greater cooperation and also a greater volume of deals in the future through the use of standardised hedge structures.
He continued: “We are proud of what we have achieved with LifeMetrics and are delighted that it will now officially form the backbone of an industry standard through the transfer to the LLMA.”
Costas Yiasoumi, Chair of the LLMA’s Accessibility Committee (and Head of Longevity Solutions at Swiss Re) commented: “The adoption of LifeMetrics by the LLMA is a significant step towards the LLMA’s goal of producing widely accepted and used mortality indices. This is latest in a line of shared work that has gone between the LLMA members over the last year, and is a continued demonstration of how much commitment all the members bring to the Association.”
“Over the last year those of us involved in this market have seen a growth in interest from pension plans and insurers in longevity protection. As the insurance industry’s capacity to write longevity is finite establishment of a capital market investor base will contribute towards the long term availability of longevity solutions. To achieve this goal buyers and sellers in mortality index transactions need comfort that there are recognised pricing standards, actuarial data and indices that both sides can use as the basis for a transaction. We are confident that this new step, and the growing membership of the LLMA which strengthens industry consensus, will help deliver that framework.”
The LLMA are making good progress towards standardising methods for transfer of longevity and mortality risks. Creating a market in such a manner, through open cooperation between participants should lead to liquidity and a greater chance of success (or longevity) for the market itself. It is a shame that the catastrophe bond market didn’t develop with this ideal of standardised risk structures as it may have become more liquid and more diverse than it is today.