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On the Failure (Success) of the Markets for Longevity Risk Transfer

Author

Listed:
  • Richard MacMinn
  • Patrick Brockett

Abstract

Longevity risk is the chance that people will live longer than expected. That potential increase in life expectancy exposes insurers and pension funds to the risk of not having sufficient funds to pay a longer stream of annuity benefits than promised. Longevity bonds and forwards provide insurers and pension funds with financial market instruments designed to hedge the longevity risk that these organization face. The European Investment Bank and World Bank have both discussed longevity bond issues, but those issues have failed due to insufficient demand. Forward contracts have also been created, but that market remains dormant. The extant literature suggests that these failures may be due to design or pricing problems. In this article the analysis shows that the market failure is instead due to a moral hazard problem.

Suggested Citation

  • Richard MacMinn & Patrick Brockett, 2017. "On the Failure (Success) of the Markets for Longevity Risk Transfer," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(S1), pages 299-317, April.
    • Handle: RePEc:bla:jrinsu:v:84:y:2017:i:s1:p:299-317
    DOI: 10.1111/jori.12205
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    References listed on IDEAS

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    Cited by:

    1. Coughlan, Guy, 2025. "Avoiding a longevity catastrophe: Harnessing longevity indices to mitigate individual, institutional and systemic longevity risks," Insurance: Mathematics and Economics, Elsevier, vol. 125(C).

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