The risk that pension or annuity beneficiaries live longer than expected, one of the largest exposures in the world and the only one that resists securitisation.
Longevity risk is the risk, for a pension fund or a life insurer, that its beneficiaries live longer than expected, weighing on the annuities and pensions to be paid. With a global exposure estimated at between fifteen and twenty-five trillion dollars, it figures among the largest in the world, and yet it alone resists securitisation. It inverts the logic of insurance, for the loss is born of a fortunate event, life that is prolonged, and it takes the form of a slow and never-resolved trend rather than a dated claim. Its market is one-sided, no investor gaining from survival, and its most dangerous part, the trend drift linked to medical progress, is also the least modelable. Its natural home remains the reinsurer's balance sheet, where it offsets against mortality risk, and its systemic share has no ultimate bearer but the state.
If a medical advance suddenly adds several years of life expectancy to an entire population, a pension fund sees its commitments swell simultaneously, without any market investor having agreed to bear this correlated risk.
risque longévité, longevity risk