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The Strategy of Longevity Risk Securitization in China

Author: ZhangQin
Tutor: ChenZhiGuo
School: Southwestern University of Finance and Economics
Course: Insurance
Keywords: Longevity risk securitization Longevity risk bondLongevity risk swap Longevity risk future Longevity risk option
CLC: F842
Type: Master's thesis
Year: 2012
Downloads: 314
Quote: 0
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Abstract

With the improvement of mortality and the growing average expected life, the aging of the population continues to be worse. As a result, longevity risk affects many aspects of the economy. The longevity makes the payment period of annuity products longer than expected, and the pension insurer face the growing longevity risk. Insurance companies and pension plans pay more and more attention to longevity risk.As a means of longevity risk management, longevity risk securitization developed on the basis of life insurance securitization. The current international research has made a significant progress on life insurance securitization, and also does some research on longevity risk securitization. This paper discusses the strategy of longevity risk securitization in China, with the help of foreign research.Firstly, this paper starts from the understanding of longevity risk and presents the definition, reasons and features of longevity risk. And then paper discusses the affects of longevity risk to life insurance companies, and puts forward some traditional solutions to longevity risk. After that, paper points out that these solutions are not effective to manage longevity risk. All of these lead to a new management tool, longevity risk securitization.Secondly, the paper offers a longevity risk securitization tool. With an overview of the evolution and the advantage of the longevity risk securitization, the paper focus on a basic longevity risk securitization tool, longevity risk bonds. And then with a case of this tool, paper deeply analyzes this tool about the general form and operation of the mechanism.Thirdly, attention is paid to longevity risk swaps, futures and options these three tools. Citing some related cases, the paper analyzes the advantages and disadvantages of these tools in longevity risk management process, and summarizes the common points of all tools and respective differences.Fourthly, the paper analyzes the necessity and feasibility of introducing longevity risk securitization tools to life insurance in China. This part of paper points out the particularity of longevity risk in China, and discusses the necessity of the securitization for Chinese life insurance. And then the paper lists the conditions for longevity risk securitization in China, such as securitization experience, professional personnel, information systems, regulatory environment.Fifthly, this part offers some suggestions on strategy of longevity risk securitization for life insurance in China. It is difficult to operate longevity risk securitization in China now and the traditional ways still play important role in management of longevity risk. However, longevity risk securitization trend is inevitable in China. In aspects of the tools’mechanism design and external environment, the paper gives some suggestions on how to take the tools’ advantages, and avoid the disadvantages.In summary, the main views of this paper are:First, the longevity risk securitization is more effective than the traditional longevity risk.management, and will become the trend of longevity risk management. Second, introduction of longevity risk securitization for life insurance in China is necessary and feasible. Third, it isn’t probably for the life insurance in China to operate longevity risk securitization now, and we should pay attention to the mortality statistics and the mortality rate plan. Fourth, to promote longevity risk securitization in China, we should develop the capital market, encourage financial institutions to enter longevity risk securitization market, and cultivate the awareness of investors. It is necessary to establish a reasonable regulatory legal system and develop intermediate institutions, such as special purpose vehicles and credit rating agencies.

The Strategy of Longevity Risk Securitization in China

Abstract

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