Sessional Meeting: Assessing Basis Risk for Longevity Transactions – Phase 2

The paper is available to download here 

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. Such indices are often used in pension benefits and annuitant liabilities as well as providing actuaries with key data.

Phase 1 was completed by Cass Business School and Hymans Robertson LLP in 2014, which included examining longevity basis risk. This led to the development of a methodology that could be used to measure longevity basis risk.

The current Phase 2 has been undertaken by Macquarie University and supported by University of Waterloo, Australian National University and Mercer Australia. This research focuses on putting the earlier work conducted in Phase 1 into practice and measuring longevity basis risk in a number of practical examples using  UK, as well as international datasets.

This research is intended to enable practitioners to better assess the benefits that might be available from the use of simpler, more standardised and easier to execute index-based longevity solutions, as well as the extent of the basis risk that might be introduced by the use of population mortality data to determine mortality improvement assumptions.

This sessional meeting will cover the following aspects of the research project:

• Outline the most relevant risk metrics
• Provide realistic examples
• Present a robust quantification of basis risk
• Present limitations of the choice of time series models