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Longevity Risk (2nd edition)

By Emma McWilliam, Matt Thomas, Howie Timothy


Emma McWilliam returns with the highly anticipated, and fully updated, second edition of Longevity Risk. McWilliam, alongside two new co-editors and Hymans colleagues Howie Timothy and Matt Thomas, has assembled a roster of leading experts in the field of longevity.

Managing longevity risk (LR) requires an understanding of a wide range of issues, from the measurement of LR for pricing, reserving and setting aside capital, to the management of risk through de-risking, reinsurance and capital markets solutions. These diverse topics are assiduously explored in this text by longevity thought-leaders and practitioners, whose extensive experience cuts across disciplines, from (re)insurance to capital markets, from law to medicine and academia, as well as across the major longevity markets globally.

The book is divided into 5 Parts:

I. Setting the Scene: Appreciating the big leaps forward around the world made over the last century, enabling the reader to understand the evolution of LR.

II. Measurement of Longevity Risk: In assessing LR, consideration is given to key attributes such as data sources, statistical techniques, application of credit theory, future mortality projections and measuring uncertainty.

III. Longevity Risk Management: De-risking options for pension schemes, insurance companies, and reinsurance are defined and explored. As are how to limit counterparty credit risk exposures, commercial aspects of reinsurance and hedging.

IV. Capital Markets and Wider Considerations: The alternative end route to de-risking is looked at in detail. Key capital market transactions, the role of longevity indices, the role of governments and legal considerations of cross-market deals are all dealt with.

V. Spotlight on International Longevity Markets: Global growth in LR transfer markets has rapidly developed. The final part of this book shines a light on the three countries leading that growth: Canada, the Netherlands and the United States.

As LR evolves, so does the sophistication of the tools with which we measure and manage the risk. It is the aim of this book to inform the reader and arm them with the knowledge to develop robust and innovative solutions, enabling the effective management of longevity risk, for the long-term benefit of future generations.

Publish date: 29 Apr 2019

Availability: In stock


Book description

Emma McWilliam returns with the highly anticipated, and fully updated, second edition of Longevity Risk. McWilliam, alongside two new co-editors and Hymans colleagues Howie Timothy and Matt Thomas, has assembled a roster of leading experts in the field of longevity.

Book details

Publish date
29 Apr 2019
230mm x 280mm

Author biography

Emma McWilliam, Matt Thomas, Howie Timothy

Emma McWilliam leads Hymans Robertson’s life and financial services consulting business. She has more than 20 years’ industry experience and 15 years’ consulting experience,working in the UK, US, Australia, Singapore, Switzerland, Germany, the Netherlands, France and Belgium.Shehassigni cant experience in the area of longevity risk, having worked internationally advising insurers, reinsurers, investment banks and institutional investors. Her particular longevity risk expertise relates to advising on the acquisition of bulk business,establishment of pricing bases and risk management of annuities. She has reviewed portfolio transfers and undertaken strategic assignments for securitisation opportunities, and worked on the development of longevity bond and swap structures for transferring risk to the capital markets. Her work also includes advising on mergers and acquisitions, product development, risk and capital optimisation, investment/ALM and financial reporting for insurers. Emma is chair of the board for the Investment and Life Assurance Group (ILAG), and was formerly chair of ILAG’s financial reporting practitioner group. She regularly chairs and presents at industry conferences and has contributed to a number of publications. She is a fellow of the Institute and Faculty of Actuaries, a fellow of the Society of Actuaries and a member of the American Academy of Actuaries.Emma is a strong advocate for equality and diversity and is passionate about three things in life: work, family and friends!

Matt Thomas is a qualifed actuary and life consultant at Hymans Robertson, with a particular interest in longevity. Throughout his career he has worked with a number of different clients, from insurers, reinsurers, banks and pension schemes. He spends much of his time helping insurers and reinsurers with longevity matters ranging from independent analysis on longevity trends to provision of longevity pricing support. Most recently, Matt has been assisting his clients with their deferred pensioner propositions, delving into Club Vita’s non-pensioner data set and analysing member option behaviour and mortality experience. He also has experience in helping new entrants enter into the longevity risk transfer market. Prior to working as a life consultant, Matt worked as axxi LONGEVITY RISK pensions consultant, providing advice to trustees of defined-benefit pension schemes. In his spare time Matt is a keen runner, and enjoys snowboarding and surfing.

Howie Timothy is an actuary and a life and longevity consultant at Hymans Robertson in London. Coming from a diverse consulting background, he has worked with a wide range of pension sponsors and trustees, insurance companies and reinsurers. He is a fellow of the Institute and Faculty of Actuaries. Howie has particular expertise in longevity related matters, assisting insurers and reinsurers in gaining value and insight from large-scale longevity data sets and analytics.He has been involved in UK-based longevity transactions and has experience supporting new entrants to the bulk annuity market. Howie has more recently been exploring overseas longevity markets, and continues to support Hymans Robertson in the development and enhancement of its existing propositions.Howie took a somewhat unconventional pathway to becoming an actuary, beginning his working life in acoustic consultancy. Despite moving away from this industry, he remains passionate about music. In his free time he enjoys running, climbing and watching a good documentary or three.

Table of contents

List of Figures xi

List of Tables xvii

List of Panels xix

About the Editors xxi

About the Authors xxiii

Foreword xxxiii

Baroness Sally Greengross

International Longevity Centre (ILC-UK)

Introduction xxxv

Emma McWilliam, Howie Timothy, Matt Thomas

Hymans Robertson LLP


1. Ageing Populations and Changing Demographics 3

Nathalie Weiss, Mohamed Baccouche, Marine Habart

Groupe AXA

Consequences: ageing of the population and changes in the old-age dependency ratio 15

Morbidity 18

Analysis of the historical causes of death 24

Future: challenges and opportunities 29

2. Determinants of Changes in Life Expectancy 43

Nicola Oliver

Medical Intelligence (UK) Limited

Lifestyle 44

Medical innovation 58

Technology 69

Medical stagnation 71

The lived environment 75

Conclusion 92

3. Magnitude of the Longevity Issue 103

Joseph Lu

Legal & General Market sources of longevity risk 107

Bulk risk transfer and reinsurance 110

Summary 114


4 Pricing Longevity Risk: Establishing the Base Mortality Level 119

Steven Baxter Club

Vita LLP

A variety of approaches 120

Pricing using portfolio experience 122

Pricing at an individual annuitant level 148

Hybrid approaches 163

Uncertainty in base mortality levels 164

Conclusions 165

5. An Introduction to Credibility Theory 171

Robert Kairis

Lloyds Banking Group

A brief history of credibility theory 171

Limited fluctuation credibility theory 172

Greatest accuracy credibility theory 174

Practical application of credibility theory to pension scheme mortality 174

A step-by-step guide 176

Whitney's rule of thumb 180

Homogeneity within the pension scheme 180

Comparison between greatest accuracy and limited fluctuation 181

Conclusion 182

6. Projecting Future Mortality 185

Bridget Browne; Nicholas Owen

EY; PartnerRe

How have mortality and the major causes of death evolved in the past? 186

How to communicate projected future mortality 192

Key types of data available 196

Overview of the major methodologies and techniques available 199

Other influencing factors 211

Considerations at older ages 214

Future developments 216

Sense checks on projections 219

Conclusion 221

7. Modelling Longevity Risk under a One-Year VaR Framework 223

John Kingdom

Aviva Group

Introduction 223

Process for deriving balance-sheet liabilities 224

Process for deriving a one-year value-at-risk 229

Estimating one-year longevity value-at-risk 237

One-year value-at-risk versus run-off 241

Conclusion 243

Appendix A: the process of setting technical provisions in mathematical form 246

Appendix B: summary of the overall calibration process 247

Appendix C: expressing technical provisions in functional form 247

Appendix D: formulaic components of one-year longevity risk 248


8. Risk Transfer for Pension Schemes 255

Michael Anderson; James Mullins

Canada Life; Hymans Robertson

Market evolution: key themes 262

Innovations in pension risk transfer: examples from the UK market 275

Possible future market developments 281

Conclusions 285

9 De-Risking Insured Annuity Portfolios 287

Philip Simpson

Milliman The UK insured annuity market 288

Products in the UK annuity market 290

The future for the UK annuity market and transfers 293

Drivers for managing longevity risk and de-risking 294

Types of de-risking solutions for insured annuities 295

Key structural decisions for longevity risk mitigation 307

Conclusion 312

10 Hedging Longevity Risk through Reinsurance 313

Gavin Jones, Steven Rimmer

Swiss Re

Standard reinsurance forms of longevity risk transfer 313

Longevity: capacity and long-term risk mitigation 318

Impaired and enhanced annuities 322

Conclusion 325

11 Commercial Aspects of Longevity Reinsurance 327

Khurram Khan Pension Insurance Corporation Introduction 327

Key features of longevity swap reinsurance 329

Pricing 335

Data 338

Repricing rights 340

Early termination 345

Best-estimate review 350

Collateral 353

Lump sums 357

Existence checking 358

Market trends: looking ahead 359

Concluding remarks 362

12 Extreme Mortality Risk as a Natural Hedge? 365

Alison Martin; Nick Ketley; Gavin Jones

Zurich Insurance Group,AG; JRPGroup; Swiss Re

Extreme mortality risk transfer 366

Nature of extreme mortality risk 369

Contrast of longevity risk to extreme mortality risk 372

Basis risk 374

Duration 375

Financial considerations 376

Conclusion 377

Kortis Capital: a postscript 377


13. Capital Markets and Longevity Risk Transfer 383

Guy Coughlan; Pretty Sagoo

Universities Superannuation Scheme; Legal & General

A summary of longevity risk transfer market 386

Market participants 390

Methods of hedging longevity risk 396

Longevity indices 403

Life and Longevity Markets Association 405

The role of longevity indices 407

What does the future hold for capital markets hedging? 408

Conclusions 410

14 Longevity Indices 413

Paul Sweeting

Hassana Investment Company

Mortality and longevity risk 413

The mechanics of a longevity index swap trade 415

Ideal requirements of longevity indices 417

Using longevity index swaps to hedge trend risk 423

Using longevity indices to hedge catastrophe risk 425

The government and longevity indices 426

Market published longevity indices 427

Challenges for index-based swaps 429

Conclusion 429

15 Longevity Policy Committee 433

Sacha Dhamani

Prudential plc

Aligning the interests of insurance companies and investors 436

A conceptual solution 439

Longevity policy committee 441

Mechanism 443

Comparison with alternative risk transfer mechanisms 450

Additional considerations 451

Why should the government want to be involved? 455

Conclusions 456

16. Legal Considerations and Challenges in Longevity Risk Transactions 459

Jennifer Donohue Keystone Law Background considerations 460

What are the primary sources of longevity risk? 463

How do market participants manage longevity risk? 465

Who are the investors in the longevity market? 470

Legal considerations for longevity risk transfer transactions 471

Longevity and mortality risk and the International Swaps and Derivatives Association Master Agreement 474

The longevity swap 475

Specific legal issues relating to swaps 477

Further legal issues relating to longevity transactions 479

Insurance-linked securities: a paradigm shift for the UK market 484

The nuclear option 488

Managing longevity risk using a captive insurance company 488

Securitisation or monetisation of life risk 488

New funds 491

Outlook 493


17. Pensions and Longevity in the US 499

Amy R. Kessler; Karen P. Glenn, Stephen C. Goss

Prudential Financial, Inc. (PFI); US Social Security

Administration, Office of the Chief Actuary

Preparing for retirement in the US 500

Financial wellness and retirement security in the US 503

The changing old-age dependency ratio: a looming crisis 504

Longevity risk is borne by governments, public and private sponsors of defined-benefit pension funds, insurers and individuals in the US 505

What might the future hold? Forecasting future longevity improvement 518

Transferring individual longevity risk in the US 531 Transferring defined-benefit pension longevity risk in the US 531

Conclusion 536

18. Canadian Pensioner Longevity Risk 541

Richard Brown; Brent Simmons

Eckler Ltd; Sun Life Financial

The Canadian pension system 541

Canadian longevity 545

Development of the Canadian longevity risk transfer market 549

Canadian pension risk transfer market outlook 551

Conclusion 555

19 The Dutch Pensions and Longevity Insurance Market 557

Ruud van Doorn; Chris Madsen

Legal & General;Aegon

Supplementary occupational pensions in the Netherlands 558

Mortality assumptions and forecasting models 565

Longevity risk management in the Dutch pension fund market 568

Longevity risk management in the Dutch life insurance market 570

Dutch market outlook 574

Conclusion 579

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