The UK, and some other countries in Europe, lead the way when it comes to awareness of longevity risk and use of longevity risk transfer instruments to reinsure or hedge against the risks of pensioners living longer than expected. The UK in particular has seen the most activity in the longevity risk transfer market thanks to a much greater awareness of the risk. Such awareness does not yet exist in the U.S., but growing awareness of longevity risk may be the last requirement for U.S. pension plans to more actively adopt longevity de-risking and risk transfer strategies.
So says this article in European Pensions magazine written by Amy Kessler (we assume the same Amy Kessler who heads up longevity reinsurance activities for Prudential, although the article doesn’t say so). In the article Kessler says that longevity risk analysis tools and methods are currently being adapted to suit the U.S. market and will soon be available for them to quantify their longevity risks.
Kessler also says that regulatory changes are moving the U.S. into a similar situation that UK pension plans found themselves in, where longevity risk manifested itself more swiftly against pension plan sponsors balance sheets and pension reporting moved to be on the balance sheet rather than off it, making the risk more easily detected. With these points in mind longevity risk suddenly moves up the corporate priority list and as such U.S. pension plans are expected to actively begin to assess their options for transferring longevity risks to third parties. However the lack of awareness and use of outdated methods for measuring longevity risk are holding back pension plans from actively pursuing transactions at this time.
The article gives a good overview of the reasons for the U.S. lagging behind in management and transfer of longevity risks, we suggest you read it and will leave you with one quote from the article which sums it up nicely.
Longevity risk will not be recognised as a significant concern in the US until plan sponsors fully examine their liability risks using updated life expectancy projections that are appropriate for each pension plan; and reduce their asset risk.