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


To date there has only been a single insurance-linked security transaction which transferred the risk of policyholders living longer, or longevity risk, to the capital markets. That transaction, Kortis Capital Ltd. which was sponsored by Swiss Re, successfully came to market in December 2010 but so far no-one else has tried to emulate the deal.

An interview published by A.M. Best (available here on InsuranceNewsNet.com) with Pierre Ozendo, the soon to retire Chairman and CEO of Swiss Re America, suggests they may try to repeat the transaction themselves or devise new capital markets risk transfer structures to suit the transfer of longevity risks.

Mr. Ozendo gave A.M.Best his thoughts on a number of issues, one of which being insurance-linked securities. He said:

Insurance Linked Securities are essential. How do we broaden the aspect of coverage to go beyond just cat bonds, to go beyond embedded value life portfolios? What are we going to do with longevity risk? That’s the 4,000 pound gorilla in the living room. Such long-term risk is so huge, only the capital markets can be big enough to be able to insulate it. We need a capital market response. We don’t yet know how, but we’re working it. We could mix long-tail and short-tail lines in an ILS. We need to keep working on that to bring a broader spate of products to the market.

It’s clear from Mr. Ozendo’s comments that he see’s the capital markets as the best available (perhaps only) source of risk capital with the capacity to successfully address longevity risks. The size of a longevity risk transfer market could be in the trillions of dollars and it’s hard to see how the capital markets could (or would have an interest in) assuming all of the risk. However the capital markets is perfectly suited to becoming an additional source of reinsurance cover for at least a portion of these longevity exposures.

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.

Read previous post:
Despite four new catastrophe bonds during July, investor demand for ILS remains strong

Despite the issuance of four new catastrophe bonds, which brought close to $700m in additional investment assets to the insurance-linked...