We’ve written about the rise of death bonds before.
That term relates to the secondary-market trading of life insurance policies and securitisation trends within the general life-settlement industry. But there is another breed of death-related market in the making.
Death risk, after all, is no different to any other risk managed industry out there. And where there’s a market for risk-products, there naturally has to be an associated index for pricing that risk.
Consequently as Reuters reported on Sunday:
LONDON (Reuters) — A new association has formed to transfer longevity and mortality-related risk to the capital markets in the same way that some of the world’s biggest perils, such as hurricanes and earthquakes, are protected against by shifting the risk to investors via catastrophe bonds.
The Life and Longevity Markets Association (LLMA), made up of a consortium of banks, insurers and pension experts, will develop a series of standardized indices that can be used as a global benchmark for trading longevity and mortality risk.
The risk will be traded as swap structures initially, but as the market develops, longevity bonds will be created to transfer the risk, much like transactions such as cat bonds in the insurance-linked securities (ILS) market and other large trend risks like interest rates and inflation.
Which presumably means you can expect a “death ETF” to appear sometime soon as well, no?
Related links:
People’s unwillingness to die on schedule hurting insurers, Moody’s says - FT Alphaville
Banks and insurers team up for ‘death bonds’ market - Financial News
Goldman Sachs abandoning life settlements market – Investment News