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:
- Final report - Phase 2
- British Actuarial Journal, Volume 23 , 2018 , e25: Assessing basis risk for longevity transactions - Phase 2
Media coverage
- Assessing basis risk in index-based longevity swap transactions, Annals of Actuarial Science, Vol. 13, part 1, pp. 166–197.
- On the optimal hedge ratio in index based longevity risk hedging, European Actuarial Journal (2019) 9:445–461
- New developments in Longevity Risk Transfer Market (Actuaries Digital), 15 December 2017.
- The Long Game, The Actuary - Jan/Feb 2018
- Academics, industry investigate longevity bonds, insuranceNEWS.com.au, 26 July 2016 and related press update
- Longevity, a new opportunity for investors, Financial Observer, 16 August 2016 and related press update
- Longevity Basis Risk research underway, investmentmagazine.com.au, 18 August 2016 and related press update
- Manage longevity risk by accessing capital market, academic says, RiskAdviser.com.au, 29 August 2016
- Longevity Risk: Old Age is Getting Even Older (Actuaries Digital), 25 August 2017
- Research shows path to de-risking longevity, investmentmagazine.com.au, 29 January 2018
| 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 |
Events calendar
No results found.