Betting Against Longevity, and Concerned About It

The pension and annuity industries and even some of the individual companies involved are truly massive. Vast sums are at play over the course of decades, and these industries will be greatly impacted by advances in means of extending healthy human longevity. Those involved are well aware of this: their challenge is not the fact that human lives will grow longer, but rather that there is great uncertainty over the upper limits to that growth. We are no longer in an era in which it is safe to extend the slow upward trend in adult life expectancy: work such as that of the SENS Research Foundation or any of dozens of other scientific groups could contribute to a sudden leap in healthy life span by producing the means of at least partial rejuvenation.

This is a challenge for the annuity and pension giants because in providing their services they have effectively taken on bets against a large increase in life span within our lifetimes. They will be ruined, or more likely they will taken on a form of insurance themselves and their counterparties in the broader financial industry will implode. Equally these entities are so large and have so much leverage that they will be able to have politicians bail them out, transferring the cost of being wrong to the public purse. It will be something like the fallout from the US real estate bubble, and another symptom of much that is wrong with the existence of highly centralized, powerful states and governance.

Various entities around the world are taking half-steps in the direction of reducing their financial exposure to increasing longevity - which might be an indication of what people really think about the prospects for greater longevity arising from medical science, if they have enough money at stake to carefully investigate the issue. Cynically, this might be thought of as a shifting of risk onto larger financial parties willing to take it on because they know they can engineer a state bailout at the end of the day. This is an example of the type, not particularly important in and of itself, but representative of the flow of money and responsibilities presently underway in response to changing expectations on the future of human longevity:

A Canadian company has signed an agreement to outsource its pension plan risk by buying about $500-million of annuities, spotlighting the growing interest in such purchases from companies eager to reduce the volatility of their retirement plans. The agreement, which is the largest group annuity deal of its kind in Canada, echoes a pattern that is already well established in the United States and Britain, as companies seek to "de-risk" defined-benefit pension plans.

The deals are popular because they remove companies' long-term pension risks and reduce future income volatility. "They are talked about such a lot now that it seems inevitable to me that we're going to see more of these set up."

Under a "pension buy-in," an insurer essentially takes over the risk of funding a firm's pension payments by selling the firm annuities with guaranteed payout rates to match the size of the pension obligation. The company still has ultimate responsibility for the pension plan and remains the pension plan's sponsor, and the deal does not affect the level of benefits owed or paid to retirees.

For years, U.S. and British companies have structured deals to shift the risk of their pension obligations to a third-party insurer. General Motors Co., for example, did a $26-billion (U.S.) annuity deal in 2012 to shift the obligation for its pension plan off its books, while Verizon Communications Inc. completed a $7-billion annuity deal for its pension plan in 2012.



I wouldn't worry too about this. We will pass laws to let those companies off the hook and people will be angry but then again, they will be young and happy.

Posted by: libfree at March 20th, 2014 7:44 PM

Life insurance actuaries were briefed in the 1970s over breakthroughs in genetics that might bring about super longevity. Gerontologists were then saying a 250-year lifespan is achievable. But the life insurance industry apparently had enough clout to throw the idea in the closet till 2003 when David Sinclair and Leonard Guarente revealed the mechanisms behind epigenetics. See:

A more expansive analysis:

Posted by: Bill Sardi at March 23rd, 2014 4:05 PM
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