Feel Like Betting On Life Expectancy? There’s A Derivative For That

Think CDS were the scourge of humanity, think again. As Pension360 reports, several Wall Street firms are selling securities backed by longevity risk – the risk that retirees receiving benefits will live longer than expected (and thus incur a higher cost on their retirement plan). As Ted Ballantine notes, ‘no one ever said Wall Street wasn’t creative’; but one wonders just how the banks are mitigating this risk…

More from Institutional Investor:
Sovereign wealth funds, educational endowments and ultrahigh-net-worth individuals are the target investors for longevity derivatives, which package the risk that retirees drawing annuities will outlive actuarial expectations. The roots of this nascent market date back to 2006, when small monoline insurance companies such as U. K.-based Lucida (purchased by Legal & General in June 2013) and Paternoster (bought by Goldman Sachs Group in 2011) began taking longevity risk off European pension funds through bulk annuity buyouts.
These buyouts entail a company selling pension assets earmarked for all or some of its plan participants. The assets are converted to annuities that the sponsor can keep on its books or off-load to the insurer.

This post was published at Zero Hedge on 09/06/2014.