With the mortality rate trending upwards, longevity risk has become a real financial risk for DB plans, says George Graziani, senior vice-president, client markets, with Swiss Re.
“A 1% change in mortality improvement, which is a pretty modest change, translates into a 4% change in plan values. When you consider that there’s over $1 trillion exposed to Canadian longevity risk, a 4% change translates into about $40 billion.”
For plan sponsors looking to minimize their risk, the life reassurance market and longevity insurance can provide some security.
“Essentially, you’re exchanging a series of uncertain payments that are trending upwards for a set of certain, well-defined payments,” explains Graziani. “If you’re doing liability driven investing, where the objective is to measure your assets and manage your assets to your liabilities, longevity insurance is a no-brainer. It locks in your liabilities, and it makes that process much, much easier.”
Watch the video to find out more about why plan sponsors should consider longevity risk.