A recent article in Bloomberg discusses the state of capital market solutions for the transfer of longevity risk.
The reality is that the longevity market is still in its infancy and there are a number of obstacles that are affecting its development.
One of the main hurdles involves the fact that longevity risk is very long-term in nature. Securities that mature over the course of 20 years are not hugely appealing to hedge fund managers who are providing quarterly performance reports to their clients.
That said, the need for capital market capacity to address longevity risk will likely be huge. It is estimated that pension funds have exposure to as much as $17 trillion in longevity risk. Insurance company balance sheets will only be able to address a portion of that risk.
Demand for longevity risk transfer solutions could also accelerate if governments and corporations are forced to recognize pension plans on their balance sheets. This is the type of regulation that, in 2004, turned the UK into the "world's biggest market for insuring pension liabilities."
The Bloomberg article is highly recommended.
Source: Bloomberg
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