Longevity Risk Framework

The risk management of longevity is still in its infancy and there are a number of aspects that could improve this:

• creation of an industry-standard definition of all the risks behaviours underlying longevity risk
• development of a method to benchmark the output of different risk models used by individual companies using this standard definition
• identification of new ways to reduce risk using this standard definition to identify the intrinsic and avoidable risks
• consideration of the differing longevity risk exposures of different kinds of beneficiaries.

The MRSC has published an IFoA Longevity Risk Framework that is intended to address the first bullet.

Summary of Framework

The framework has been designed to achieve the following qualities:

1. The taxonomy should be applicable to both “economic” and “one-year” assessments of risk.
2. It should differentiate between the systemic population risk (to which all providers are exposed, albeit to different extents) and the specific portfolio risk (to which individual providers may have materially different exposures).
3. It should be applicable to all forms of longevity exposure and longevity risk management approaches.

It contains 10 risk components split between those affecting the general population and those that would affect the specific portfolio. The risk components are described in the table below.