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France’s AFPEN working on longevity bond

FRANCE – AFPEN, the French association of pension funds and retirement regimes, is currently working on a longevity instrument based around annuity futures, IPE understands.

AFPEN head Vincent Vandier confirmed the project, but declined to give further details. He would be able to provide further information in about a month’s time, he said.

Vandier and the association were name-checked in a recent academic paper on longevity bonds for their “ideas and thoughts” on annuity futures.

Andrew Cairns, Professor of Financial Mathematics in the Department of Actuarial Mathematics and Statistics at Heriot-Watt University in Edinburgh, told IPE he has had a couple of meetings with the relevant AFPEN committee in Paris.

He said: “My own feeling is that a futures contract would have to be relatively long term for the mortality risk to show through in a meaningful way, and that a market might take some time to develop.

“One way forward is for some organisation to develop an index rather like CSFB's longevity index but based upon market annuity rates.”

Credit Suisse First Boston launched the Credit Suisse Longevity Index in December – saying it is the first index “designed specifically to enable the structuring and settlement of longevity risk transfer instruments such as longevity swaps and structured notes”.

The index is intended for use by institutional investors, insurance companies, reinsurance companies and providers of post-retirement benefits as well as other longevity and mortality risk managers.

IPE reported earlier this week that UK actuaries had expressed scepticism about the potential for the market in longevity bonds – such as that marketed by BNP Paribas - to take off.

But Cairns, who presented at the meeting, told IPE: “The bottom line is that investment banks seem to be investing a lot of time and effort into developing mortality-linked deals.

“I don't think that they would be doing this unless a significant number of investment actuaries/consultants had expressed an interest.

“It would seem though that longevity bonds in their basic form don't seem to be hitting the target.”

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