New standards for the longevity risk market

LLMA_COUGHLANWith the rise of trading of longevity risks comes the desire for some kind of trading standards. The Life & Longevity Markets Association (LLMA), launched nine months ago, this morning seeks to fill the gap by making available a series of technical publications which it claims will bring the creation of a longevity market a step closer.

The publications comprise a general Longevity Pricing Framework and six documents describing two specific longevity hedging instruments that include technical descriptions, pricing spreadsheets and termsheets. The LLMA has produced them with input from specialists from each of its member firms: AXA, Deutsche Bank, JP Morgan, Legal & General, Morgan Stanley, Pension Corporation, Prudential PLC, RBS, Swiss Re and UBS.

According to the LLMA, the Longevity Pricing Framework provides market participants with a standard means by which they can calculate and communicate pricing. The framework is not, however, intended to generate firm prices upon which longevity transactions can be executed. Instead it is intended "to facilitate a shared understanding of the nature of a particular longevity exposure and a 'benchmark priceí' against which an actual transaction price may be compared".

Standardisation will facilitate the development of a liquid traded market in longevity risk transfer, the LLMA says. The framework should also help longevity hedgers to compare the pricing of different hedging solutions.

"The LLMA is pleased to make these new publications available to the market to promote further standardisation and foster the development of liquidity," said Guy Coughlan, chair of the LLMA Technical Committee, spokesperson for the LLMA and a managing director at LLMA member firm JP Morgan. "Our technical workstream has worked hard over several months to create these documents with substantial input from our members, who represent leading active participants in the longevity market."

The Longevity Pricing Framework is the LLMA's second framework publication. In August it published the first draft of its Longevity Index Framework.

Interested parties can download the suite of documents launched today, which includes the general pricing framework and specific instrument technical descriptions, termsheets and pricing spreadsheets, from the LLMA website at

Fiona Rintoul, editorial director
©2010 funds europe

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