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The Actuary The magazine of the Institute & Faculty of Actuaries

Longevity – unpredictable, but insurable?

Legal & General is developing a ‘longevity insurance’ policy to help schemes hedge the risk of members living longer than expected, according to a report in Professional Pensions.

Actuary and managing director of annuities Simon Gadd said he believed it was possible for the insurance market to develop similar products to the swaps being used by pension funds in their investment strategies. The new products would allow schemes to offload the risks of the increasing life expectancy of their members on to an insurance company, he said.

Gadd added: ‘Maybe we can construct a contract which does the same thing for longevity risk as derivatives do in liability-driven investment. If life expectancy increases above a certain level, the insurance would kick in.’ An alternative solution could be a straightforward swap, where the insurer would agree to pay if life expectancy increased and the scheme agreed to pay if it was less than expected, he said.

This report coincided with Press criticism of actuaries when the Continuous Mortality Investigation indicated it would not publish projections of improving mortality because of the uncertainty surrounding the issue.