Technical Issues in Securitization of Longevity Risk

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Over the past 100 years, life expectancies in the developed world have increased at a rate of approximately 2.5 years per decade. The enormous improvement in longevity is one of the greatest achievements of modern civilization, but, to the extent that it is unanticipated, longevity improvement can pose problems to governments and pension plans. The adverse impact of under-estimating longevity improvement is huge, especially in the current low interest rate environment where future pension and annuity liabilities are not heavily discounted.