Swiss Re Insurance-Linked Fund Management

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RMS LifeRisks 2.0 to include excess mortality models as well as longevity


Risk modeling firm RMS (Risk Management Solutions) recently held an event in London about their work in the longevity and mortality space and to discuss the upcoming launch of the latest version of their LifeRisks modeling solutions. The event featured talks from RMS staff about their LifeRisks 2.0 product and how it can be used to facilitate risk transfer of longevity or mortality risks. The most important thing for interested potential users to note is that RMS LifeRisks 2.0 will include excess mortality models as well as longevity (version 1.0 was longevity only).

The longevity and mortality insurance-linked securities market is an area which has always been said to be on the cusp of growing into a much larger part of the market, however we’ve only seen the one longevity risk ILS deal, Swiss Re’s Kortis Capital Ltd., while on the mortality side Swiss Re’s Vita transactions (such as Vita Capital IV Ltd. (Series V and VI), Vita Capital IV Ltd. and Vita Capital III Ltd.) all provide cover for increasing rates of mortality and Munich Re’s Nathan Ltd. was an extreme mortality transaction. So while we have seen some activity in the ILS market with these risks it hasn’t been all that widespread yet.

RMS plan to release LifeRisks 2.0 at some point in July. LifeRisks 2.0 ‘significantly expands the functionality and feature set of version 1.0’ according to RMS and they see the product as a step on the road to achieving their vision of ‘an integrated platform for management of life and longevity risk’. So what’s different in the new version?

LifeRisks version 1.0 only included a longevity risk model targeted at the UK and only allowed modeling of simple annuity type contracts. LifeRisks 2.0 however adds the ability to model excess mortality risks as well as longevity risks. The new excess mortality model will give users the ability to assess and model excess mortality from terrorism, infectious disease, US earthquake and residual risks. The geographic coverage of LifeRisks has improved in version 2.0 as well and it will now offer modeling of both longevity and mortality risks for the UK, U.S. Netherlands, France, Germany and Canada. The range of contracts modeled has also been expanded and now covers deferred annuity, joint annuity and life as well as simple annuity. LifeRisks 2.0 will allow event loss tables and exceedance probability (EP) curve data from other sources to be uploaded to analyse combined excess mortality risk.

In the future RMS plans to add further functionality to LifeRisks including sensitivity analyses, hedging, enhanced annuity modeling, model customisation and other enhancements that their customers and the market requests.

With this soon to be released upgrade to LifeRisks, RMS are taking their product to the next level where by it is going to offer some serious functionality to those looking to transact longevity or mortality risk transfers. The model will be useful no matter what form the risk transfer takes and will assist with re/insurance, swaps and hedges as well as longevity or mortality insurance-linked securities if and when another comes to market.

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