Longevity risk
Longevity risk is a financial and actuarial term used to describe the potential risks attached to the increasing life expectancy of pensioners and policy holders, which can eventually translate in higher than expected pay-out-ratios for many pension funds and insurance companies. [1]
Some actuarial mathematics experts have argued that longevity risk constitutes by far the most significant source of risk after interest rates and inflation, and that, unlike interest rates and inflation risks, longevity shocks persists over time. Going forward, customized longevity swaps and index-based longevity hedges (both embryonic, illiquid, financial instruments at the moment) might ultimately provide the required level of hedging for longevity risk. [2]
References
- ^ (English) see Stephen Richards & Gavin Jones, “Financial Aspects of Longevity Risk”, SI Actuarial Society, 26 Oct 2004, http://www.sias.org.uk/data/papers/LongevityRisk/DownloadPDF, retrieved 2004-10-26
- ^ (English) see Andrew Cairns, “Understanding and managing pension risk- with a focus on longevity risk”, OECD WPC World Pensions & Investments Forum, 10 Dec. 2010, http://www.worldpensions.org/uploads/DR_CAIRNS_OECD_WPC_2010_FINAL.pdf, retrieved 2010-12-10
Bibliography
- Vincent Bazi & M. Nicolas J. Firzli, “1st annual World Pensions & Investments Forum”, Revue Analyse Financière, Q2 2011, pp. 7-8
- Thomas Crawford, Richard de Haan, & Chad Runchey, “Longevity risk quantification and management: a review of relevant literature”, The Society of Actuaries, March 2008
- Gavin Jones, “Financial Aspects of Longevity Risk”, Cass School International Conference on Longevity, 18 Feb. 2005