General Background


Defining Longevity/Mortality Risk: Review

Mortality Risk is the risk that an individual or group lives shorter than expected

  • Holders of Mortality Risk are those who are economically exposed should a group die too quickly (or benefit from less-than-expected mortality)

    • Insurance Carriers collect premium and forestall payment of death benefits until the death of the insured
    • Reinsurers often take on this risk, ceded by insurers
  • Longevity Risk is the risk that an individual or group lives longer than expected

  • Holders of Longevity Risk are those who are economically exposed to an extension in lifespan (and benefit from above-expected mortality)

    • Pension Funds continue to pay out benefits until the death of their beneficiaries
    • Annuity Writers make annuity payments until the death of the annuitant
    • The Social Security Trust Fund is the largest known pool of longevity risk
    • Life Settlement Investors purchase policies and pay premiums to keep policies in force, with longevity being the key variable affecting the investor’s IRR


 

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