Is longevity an insurable risk? Hedging the unhedgeable

Jorge Miguel Bravo, Javier Díaz-Giménez

Research output: Working paper

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Abstract

In the 18th century, Benjamin Franklin said that "Nothing is certain but death and taxes". The 21st-century adaptation of this famous expression could be "nothing is certain but longevity and taxes." Longevity risk is a critical risk for institutions that provide life-long payments such as pension funds, annuity providers and public pension schemes. The amount of unfunded liabilities institutions face will be massive if their beneficiaries live considerably longer than expected. This paper addresses the problem of longevity risk and discusses the ways in which
individuals, life assurers, annuity providers and pension plans can manage their exposure to this risk. We discuss whether the traditional insurance mechanism, involving risk transfer and pooling, can deal appropriately with longevity risk. We then review longevity risk management solutions, comprising both traditional insurance and reinsurance techniques and recently developed capital market instruments.
Original languageEnglish
PublisherInstituto BBVA de Pensiones
Pages1
Number of pages19
Publication statusPublished - 26 Oct 2014

Publication series

NamePapers Mi Jubilación
No.9

Keywords

  • Public pensions
  • Longevity risk
  • Capital market instruments
  • Insurance

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  • Cite this

    Bravo, J. M., & Díaz-Giménez, J. (2014). Is longevity an insurable risk? Hedging the unhedgeable. (pp. 1). (Papers Mi Jubilación; No. 9). Instituto BBVA de Pensiones.