NEW ASSOCIATION LOOKS TO CREATE LONGEVITY RISK LIQUIDITY

Insurers, reinsurers and banks have joined together to form the Life & Longevity Markets Association (LLMA) with the aim of creating a liquid secondary market in longevity risk. AXA, Swiss Re, Legal & General, Prudential and Pension Corp have joined with Deutsche Bank, JP Morgan Chase and Royal Bank of Scotland to create the group, which intends to develop standard contracts, a trading index and a valuation model for mortality. LLMA board member John Fitzpatrick said that the first tradable contracts are likely to be longevity swaps. He felt that, although insurers and reinsurers were leading participants, in the future it was likely to be pension funds that used the market most in order to stabilize their liabilities. Swiss Re head of pricing Jonathan Graham said that "longevity capacity exists within the insurance market at present, but there simply isn't enough to cover the long-term future needs". Mr Fitzpatrick said that previously capacity had been absorbed by the insurance and reinsurance markets, but that, with liabilities in the UK alone approaching £2trn ($3.2trn), there was insufficient capacity to absorb future risk.