Longevity Bond Definition | Annuity Digest

Longevity Bond

With people living longer lives, pension funds and insurers may find themselves with a gap between their expected and actual longevity liabilities. In other words, pension funds and insurance companies may be on-the-hook for more than they think if their members and customers end-up living longer than expected. A longevity bond is way they can transfer the risk of people living longer than expected to investors, in this case, the bondholders. The coupon payments are linked to a particular age group in the population. The longer the people in this group live, the smaller the payments are. In some cases, the coupon is not paid until the longevity risk is high. For example, the first payment may not be made until the underlying reference group reaches 75 years.

RMS Model Provides a New Perspective on Longevity Risk

Risk Management Solutions (RMS) is well known as a leader in the area of catastrophe modeling and analytics. The company provides its services to a broad range of insurers, reinsurers, consultants and capital markets participants who are active in the property and casualty insurance industry.

More recently, the company has developed resources that focus on life and health risks. Though initially focused on...

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