LLMA and IFoA appoint Macquarie University to lead on basis risk project

The Life & Longevity Markets Association (LLMA) and the Institute and Faculty of Actuaries (IFoA) has announced the appointment of a research team led by Macquarie University to develop a method of assessing basis risk for longevity transactions.

Supported by University Waterloo, Australian National University and Mercer Australia, Macquarie University will lead the project to develop a readily-applicable methodology for quantifying the basis risk arising from the use of population-based mortality indices for managing longevity risk. Such mortality indices are often used in pension benefits and annuitant liabilities as well as providing actuaries with key data.

This is the second phase of the project; phase one was completed at the end of 2014 which examined longevity basis risk and led to the development of a methodology that can be used to measure longevity basis risk. This second phase will focus on putting this previous work into practice.

Colin Wilson, President-elect of the IFoA, said:

“The IFoA is delighted to be announcing the team to take this next stage of the research forward.  Managing longevity risk is a major concern for pension funds and life insurance companies, and the practical application of assessing basis risk will be useful to many in the industry.”

Robert Bugg, Chair of the Longevity Basis Risk Working Group said:

“We were particularly impressed by the robust and detailed ideas presented by Macquarie University and its supporting team. Following the success of phase one – developing a methodology to measure longevity basis risk – we are looking forward to working with this successful team to progress to the next phase.”

Associate Professor Jackie Li, Macquarie University added:

“Increasing life expectancy poses a significant challenge to insurers, pension plan sponsors, and governments. It is of utmost importance to find theoretically sound and also practically feasible approaches to manage longevity risk. In particular, the use of population-based mortality indices has great potential to deal with this risk but the problem of the existence of basis risk remains unsolved.

“Our team is very excited to have the opportunity to take up this project and develop the methodology further for practical applications. With the backing of University of Waterloo, Australian National University, and Mercer Australia, we are confident in our team's breadth and depth of capabilities to deliver an effective and valid approach to measure and manage longevity basis risk.” 

ENDS

Media contacts

Matt Beasley  

• Tel: 020 7623 2368
•  Email: matt.beasley@fwdconsulting.co.uk

Cat Ommanney 

• Tel: 020 7623 2368
•  Email: cat.ommanney@fwdconsulting.co.uk

Annette Heninger 

• Tel: 020 7632 2126
• Email: annette.heninger@actuaries.org.uk

Notes to Editors

Further information on the research can be found on the Longevity Basis Risk page.

About the LLMA

The Life and Longevity Markets Association (LLMA) is a non-profit organisation founded and funded by members. It aims to promote the development of a liquid traded market in longevity and mortality-related risk.  The association supports the development of consistent standards, methodologies and benchmarks to help build a liquid trading market, of the type that exists for Insurance Linked Securities (ILS), and other large trend risks like interest rate and inflation.

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body. 

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.