It wasn't all that long ago that I was pointing out a couple of interesting articles on the financial markets, the insurance industry and growing healthy longevity in the population at large - if you want to see what people really think about the prospects for healthy life extension over the next few decades, follow the actuaries and the money of those who employ them. The controllers of vast sums of money are becoming more convinced that they do not fully understand the risk involved in betting against a large growth in life expectancy amongst the old in the years ahead.
In its simplest form, the premise of longevity products is that by making a one-time payment, you will start receiving guaranteed lifetime income at a designated point in the future. Your projected income stream is calculated at the time that you invest. ... The insurance companies rely on the fact that people aren't going to live that long to provide the payouts to the select few that will.
Here is a knee-jerk response: unless these products are stunningly bad value for money under very conservative estimates for growth in life expectancy in the old, those companies to offer longevity insurance packages will be taking a bath twenty to thirty years from now.
Some are cynical about whether the longevity market will ever come to life - or at least on a meaningful scale. ... some banks are already testing schemes: Deutsche Bank is considering creating bonds using the cash flows from life insurance portfolios. It believes that it will receive a credit rating for these instruments soon, which should allow trading to start this year. Several other banks are experimenting with bonds and derivatives linked to longevity risk.
The game is afoot already, it would seem, judging by this press release:
Taking an important step in creating a traded market for a major risk faced by the pension industry, JPMorgan today launched its LifeMetrics Index, the only international index designed to benchmark and trade longevity risk. The LifeMetrics Index is part of an overall platform the investment bank has created called "LifeMetrics," aimed at measuring and managing both longevity and mortality exposure.
JPMorgan has designed the LifeMetrics Index to be the leading industry index used to create securities, derivatives and other structured products. LifeMetrics will enable pension plans to calibrate and hedge the risk associated with the longevity of their beneficiaries. The index incorporates historical and current statistics on mortality rates and life expectancy, across genders, ages and nationalities. Initially the index is available for the United States and England and Wales. JPMorgan intends to introduce similar indices for other countries in the coming months. The index is calculated by an independent calculation agent and will be governed by an international advisory committee including experts from different organisations.
The potential for the development of a traded market rests on the standardisation of the measurement of longevity risk associated with pension funds and the mortality risk facing life insurers. "We believe this index will facilitate the development of a market in tradable longevity risk," said Patrik Edsparr, global head of Rates, Securitised Products, Proprietary Positioning and Principal Investment businesses at JPMorgan. "JPMorgan is committed to leading the development of this market."
I view the present turning of cogs and expectations in the financial community as a net benefit to longevity research and advocacy five years hence: as it trickles down through this huge industry, the message of longer, healthier lives will become a powerful source of reinforcement to the same message coming from scientists.