Strategy for Increasing the Global Capacity
for Longevity Risk Transfer: Developing Transactions That
Attract Capital Markets Investors

Abstract

Longevity risk is a massive, global, systemic risk capable of bankrupting the various institutions that are exposed to it. Unfortunately, low interest rates and recent market drawdowns have put retirement systems in a dire state. This situation has been exacerbated by the persistent underestimation of population longevity, resulting in existing assets and reserves that are inadequate to ensure that liabilities are met. Relative to the size of global longevity risk, the present capital base of the insurance and reinsurance industry is insufficient to bear a meaningful portion of this enormous systemic risk. The only source of capital capable of assuming risk of this magnitude is the global capital markets—and, as such, it must be mobilized to do so. This article describes one strategy for accomplishing the diverse objectives of the various stakeholders in the longevity risk value chain—increasing the global capacity for longevity risk transfer and enhancing the stability of retirement systems by spreading this systemic risk.