×

Sharing longevity risk: why governments should issue longevity bonds. (English) Zbl 1412.91033

Summary: Government-issued longevity bonds would allow longevity risk to be shared efficiently and fairly between generations. In exchange for paying a longevity risk premium, the current generation of retirees can look to future generations to hedge their systematic longevity risk. Longevity bonds will lead to a more secure pension savings market, together with a more efficient annuity market. By issuing longevity bonds, governments can aid the establishment of reliable longevity indices and key price points on the longevity risk term structure and help the emerging capital market in longevity-linked instruments to build on this term structure with liquid longevity derivatives.

MSC:

91B30 Risk theory, insurance (MSC2010)
91G20 Derivative securities (option pricing, hedging, etc.)
PDF BibTeX XML Cite
Full Text: DOI Link

References:

[1] Antolin, P.; Blommestein, H., Governments and the Market for Longevity-Indexed Bonds, (2007)
[2] Blake, D.; Burrows, W., Survivor Bonds: Helping to Hedge Mortality Risk, Journal of Risk and Insurance, 68, 339-348, (2001)
[3] Blake, D.; Cairns, A.; Dowd, K., Living with Mortality: Longevity Bonds and Other Mortality-Linked Securities, British Actuarial Journal, 12, 153-228, (2006)
[4] Blake, D.; Cairns, A.; Dowd, K., Longevity Risk and the Grim Reaper’s Toxic Tail: The Survivor Fan Charts, Insurance: Mathematics & Economics, 42, 1062-1066, (2008) · Zbl 1141.91485
[5] Bohn, H.; Bovenberg, A. L.; van Ewijk, C.; Westerhout, E. W. M. T., Private versus Public Risk Sharing: Should Governments Provide Reinsurance?, The Future of Multi-Pillar Pensions, 187-223, (2012), Cambridge: Cambridge University Press, Cambridge
[6] Brown, J.; Orszag, P., The Political Economy of Government-Issued Longevity Bonds, Journal of Risk and Insurance, 73, 611-631, (2006)
[7] Cairns, A.; Blake, D.; Dowd, K., A Two-Factor Model for Stochastic Mortality with Parameter Uncertainty: Theory and Calibration, Journal of Risk and Insurance, 73, 687-718, (2006)
[8] Cairns, A.; Blake, D.; Dowd, K.; Coughlan, G.; Epstein, D.; Khalaf-Allah, M., Mortality Density Forecasts: An Analysis of Six Stochastic Mortality Models, Insurance: Mathematics and Economics, 48, 355-367, (2011)
[9] Cairns, A.; Blake, D.; Dowd, K.; Coughlan, G.; Epstein, D.; Ong, A.; Balevich, I., A Quantitative Comparison of Stochastic Mortality Models Using Data from England and Wales and the United States, North American Actuarial Journal, 13, 1-35, (2009)
[10] Cannon, E.; Tonks, I., Money’s Worth of Pension Annuities, (2009)
[11] Market Value of Liabilities for Insurance Firms: Implementing Elements for Solvency II, (2008)
[12] Coughlan, G.; Khalaf-Allah, M.; Ye, Y.; Kumar, S.; Cairns, A.; Blake, D.; Dowd, K., Longevity Hedging 101: A Framework for Longevity Basis Risk Analysis and Hedge Effectiveness, North American Actuarial Journal, 15, 150-176, (2011)
[13] Dowd, K., Survivor Bonds: A Comment on Blake and Burrows, Journal of Risk and Insurance, 70, 339-348, (2003)
[14] Dowd, K.; Blake, D.; Cairns, A.; Dawson, P., Survivor Swaps, Journal of Risk and Insurance, 73, 1-17, (2006)
[15] Dowd, K.; Cairns, A.; Blake, D.; Coughlan, G.; Epstein, D.; Khalaf-Allah, M., Evaluating the Goodness of Fit of Stochastic Mortality Models, Insurance: Mathematics and Economics, 47, 255-265, (2010) · Zbl 1231.91179
[16] Dowd, K.; Cairns, A.; Blake, D.; Coughlan, G.; Epstein, D.; Khalaf-Allah, M., Backtesting Stochastic Mortality Models: An Ex-Post Evaluation of Multiperiod-Ahead Density Forecasts, North American Actuarial Journal, 14, 281-298, (2010)
[17] Hobbs, D., A Broader Picture of the Public Sector Balance Sheet: State Pension and Other Pension Obligations—An Update at April 2012, (2012)
[18] The Financial Impact of Longevity Risk. Chapter 4 in, Global Financial Stability Report, (2012)
[19] Longevity Risk Transfer Markets: Market Structure, Growth Drivers and Impediments, and Potential Risks. Joint Forum of the Basel Committee on Banking Supervision, International Organization of Securities Commissions, and International Association of Insurance Supervisors, c/o Bank for International Settlements, Basel, Switzerland, December, (2013)
[20] Levy, S., Pensions in the National Accounts—A Fuller Picture of the UK’s Funded and Unfunded Pension Obligations. Office for National Statistics, April 27, (2012)
[21] Milevsky, M.; Promislow, S.; Young, V., Killing the Law of Large Numbers: Mortality Risk Premiums and the Sharpe Ratio, Journal of Risk and Insurance, 73, 673-686, (2006)
[22] Pension Markets in Focus, (2011)
[23] A New Pension Settlement for the Twenty-first Century, (2005), Norwich: HSMO, Norwich
[24] The Purple Book: DB Pensions Universe Risk Profile 2006, (2006), Croydon and Brighton
[25] Richards, S. J.; Kirkby, J. G.; Currie, I. D., The Importance of Year of Birth in Two-Dimensional Mortality Data, British Actuarial Journal, 12, 5-38, (2006)
[26] Tully, A., How Solvency II Will Affect the Annuity Market, Retirement Planner, (2011)
[27] Willets, R. C., The Cohort Effect: Insights and Explanations, British Actuarial Journal, 10, 833-877, (2004)
[28] Financing Demographic Shifts Project, (2009)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.