By Liaw Huang and Tom Terry
IN OUR PRECEDING ARTICLE, we proposed four different frames for understanding longevity risk. They are represented pictorially by four different curves: a “flat curve” for individual longevity risk,
a “skinny curve” for systematic longevity risk, a “skewed
curve” for the adverse consequences of understating mortality improvement, and a “rising curve” for the adverse
consequences of living a long time. Recent profession-wide
conversations on longevity risk can be understood in the
context of these four categories.
We offer these different notions of longevity risk solely
for the purpose of revealing the widely divergent uses of the
term. There are probably other frames used, and we invite
readers to offer their comments and additional perspectives.
In the area of systematic longevity risk, several large
transactions involving longevity risk transfer have taken
place over the past few years. In 2014 and 2015, Delta Lloyd,
a Dutch pension and insurance firm, entered into longev-
ity swaps with the Reinsurance Group of America (RGA)
covering liabilities worth 1. 2 billion euros. 1 In the United
States, pension liability buyouts at General Motors (2012),
Verizon (2012), Bristol Myers Squibb (2014), Motorola So-
lutions (2014), and Kimberly-Clark (2015) have transferred
a large amount of longevity risk from corporate pension
plan sponsors to insurance companies. 2 This offloading
of risk suggests that systematic longevity risk is becoming
better understood—and that solutions involving systematic
longevity risk transfer are beginning to gain traction.
Meanwhile, much of the discussion in the United States
about retirement income solutions deals with individual
longevity risk as well as the adverse consequences of living a long time.
MORE THINGS TO THINK ABOUT
This the second in a two-part series on longevity risk. The first part appeared in the September/October issue of Contingencies.