A research project jointly commissioned by the IFoA and Life and Longevity Markets Association (LLMA) has developed a readily-applicable methodology for quantifying the basis risk arising from the use of population-based mortality indices for managing longevity risk.

Longevity basis risk arises because different populations, or subpopulations, will inevitably experience different longevity outcomes. This is a significant issue for those wishing to hedge longevity risk using a published mortality index – whether they be pension schemes, insurers, reinsurers, or banks.

This work will be beneficial to a wide variety of organisations and individuals, including pension schemes and their members as well as insurance companies, which write annuity business. These and other institutions which are exposed to, or would like to invest in, longevity risk will gain from a new methodology for quantifying risk related to longevity.

Phase 2: 2016/2017

The purpose of Phase 2 has been to:

  • determine the most relevant metrics for measuring longevity basis risk and hedge effectiveness;
  • apply the approach in Phase 1 to realistic worked examples based on appropriate data;
  • present a robust quantification of basis risk to third parties such as regulators; and
  • investigate the potential limitations of the time series processes.

Outputs:

Research commissioned by: The IFoA and the LLMA
Project conducted by:

Macquarie University, University of Waterloo, Australian National University and Mercer Australia

Commenced: 2016
Status: Completed in 2017

Phase 1: 2013/2014

Phase 1 of this research focused on producing a methodology that could be used to quantify longevity basis risk and assess the level of risk reduction that might be brought about through the use of an index-based longevity hedge. It resulted in a framework that recognised the fact that different practitioners will have different portfolios, different volumes and histories of experience data, and different constraints of the models that they can use in practice.

Outputs:

Research commissioned by: The IFoA and the LLMA
Project conducted by:

The Cass Business School, City University, and Hymans Robertson LLP

Commenced: 2013
Status: Completed in 2014

Contact Details

If you have any questions or wish to discuss any aspect of our funding for member-led research please contact the Research and Knowledge Team:

arc@actuaries.org.uk

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Events calendar

  • Autumn Lecture 2020: Professor Elroy Dimson

    Online webinar
    14 October 2020

    Spaces available

    Many individuals and institutions have a long-term focus, and invest funds for the benefit of future generations. Their strategy should reflect their long horizon. University endowments are one of the oldest classes of institutional investor, and I will present the first study of the management of these endowments over the very long term.

  • GIRO Conference 2020 Webinar Series

    Available to watch globally in November.
    02-13 November 2020
    Spaces available

    This year's GIRO has been re-designed as a virtual conference to offer members and non-members the opportunity to get up to date content from leading experts in the general insurance field via online webinars. All sessions will be recorded and made available to purchase and re-watch post-event on the IFoA's GI Online Learning Resource area

  • Life Conference 2020 Webinar Series

    Online
    16 November 2020 - 27 November 2020

    Spaces available

    This year's Life Conference has been re-designed as a virtual conference to offer members and non-members the opportunity to get up to date content from leading experts in the life insurance field via online webinars. All sessions will be recorded and made available to purchase and re-watch post-event on the IFoA's website.

  • Spaces available

    The webinar will discuss the challenges and opportunities schemes face in evaluating end game options, choosing a target state and understanding the impact this strategic decision could have on member outcomes long after the “end state” is reached. Adolfo, Kevin and Rhian bring over 60 years of experience in the industry and a variety of perspectives as scheme actuary, covenant adviser, trustee, de-risking adviser and insurer.

  • Spaces available

    Cash-flow driven investing is a game-changer for DB pension funds navigating their end-game. Suitable for sponsors who want to reduce risks on their balance sheets. And for trustees, it shifts the focus to providing greater certainty of returns, managing funding level volatility and ensuring they have enough income to pay cash-flow requirements.

  • Spaces available

    Patrick Kennedy, Partner at Gateley Legal and Founding Director of Entrust (a leading professional pensions trustee company), will be delivering an update on the latest legal developments during the course of 2020. With both a pensions legal perspective and over 25 years of trustee service, Patrick will seek to highlight how the letter of the law has continued to evolve against the backdrop of a difficult and challenging year

  • Spaces available

    The talk will provide an understanding of the priorities and relationships between deficit reduction contributions, in the context of wider scheme funding, and different types of value outflow from the employer based on the working party’s recently published report.