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Avoiding a longevity catastrophe: Harnessing longevity indices to mitigate individual, institutional and systemic longevity risks

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  • Coughlan, Guy

Abstract

This paper considers the financial implications of an extreme increase in life expectancy for: (i) individuals with defined contribution pension plans and other forms of retirement savings; (ii) institutions such as defined benefit pension plans, insurance companies and reinsurers; and (iii) the financial system and economy as a whole. An extreme longevity scenario, as the IMF first acknowledged in 2006, is a long-term systemic risk that could impair the operation of the financial system with severe ramifications for the global economy. It also poses a significant risk to individuals who might live beyond the time that their retirement savings can support them. This paper explores one under-utilised way to mitigate these risks, viz., longevity index hedges, which can transfer longevity risk simply, rapidly and transparently away from where it is concentrated to a much broader set of organisations with appropriate levels of risk capital. For the market in these index hedges to grow requires a shared understanding of the hedges and their risk reduction potential by the insurance industry and regulators.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:insuma:v:125:y:2025:i:c:s0167668725001003
    DOI: 10.1016/j.insmatheco.2025.103153
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    References listed on IDEAS

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    JEL classification:

    • G0 - Financial Economics - - General

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