The supposed offset between a mortality book and a longevity book within a single composite life insurer.
The natural hedge is the idea that an insurer holding both death cover, where it pays if the insured dies early, and annuities, where it pays as long as the annuitant lives, is immunized against demographic surprises, a lengthening of life costing the second what it saves the first. This symmetry justifies the composite model and part of the capital requirement. Yet it rests on an unstated premise, that both books live in the same population. A selective therapy, reaching affluent annuitants first, strikes hard where it costs and weakly where it would pay, so the hedge does not weaken, it inverts.
If a longevity molecule improves annuitant survival by three points and death-cover survival by one, the composite suffers a net loss on a device presented as protective.
hedge naturel