FINANCIAL ASPECTS OF LONGEVITY RISK
26 October 2004
Richards, Stephen; Jones, Gavin
Synopsis
This paper examines longevity risk and its implications for actuaries working in the private sector. Longevity risk varies hugely according to the nature of the contract which contains it, sometimes in unexpected and surprising ways. Indeed, the greatest private-sector exposure to longevity risk is not to be found in the annuity portfolios of the quoted life assurance sector; rather it is shareholders of many industrial and service companies which have much greater exposure to longevity risk through their defined-benefit pension schemes.
For many products, it is important to know how long people will live. The most obvious examples in the private sector are pensions and annuities. Despite its crucial nature, longevity assumptions in some corners are very out-dated. This paper spells out some of the more important areas of concern, with potential implications for millions of people in the United Kingdom.
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