GLOBAL – Longevity bonds – such as the now discontinued EIB/BNP Paribas issue – could still be the next big thing for the financial markets once initial teething problems are overcome, according to a new actuarial paper.
“Few people doubt that mortality-linked securities are potentially very useful tools for managing longevity risk,” argue researchers in a paper set to be presented next week.
The offerings so far have had design faults such as excessive basis and risk the need for high upfront capital, they say – although the problems are not insurmountable.
“Once these teething problems are overcome, the way will be clear for the markets in these securities to develop and mature,” write David Blake, Andrew Cairns and Kevin Dowd.
“We would then be on the cusp of a completely new global financial market in mortality-linked securities. Longevity risk is arguably therefore the next big frontier for financial markets – unless of course someone ruins it all in the meantime and discovers the secret of eternal life.”
Their paper is entitled ‘Living with Mortality: Longevity Bonds and Other Mortality-Linked Securities’ and will be presented to the Faculty of Actuaries on January 16.
The BNP Paribas/European Investment Bank offering, announced in November 2004, was pulled last year, with executives saying there hadn’t been enough interest.
“We didn’t have enough investor interest to make a full issue so far, which we regret because it’s a good idea,” said Denis Autier, the bank’s head of global risk solutions.