The Birth of the Life Market

The huge economic significance of longevity risk for corporations, governments and individuals is beginning to be recognized and quantified. The traditional insurance route for managing this risk is capacity constrained, leaving the capital markets to provide an effective solution. We consider what capital markets need to both start and evolve. We then look at the first generation of bond-based capital market solutions that have been tried so far and examine their success or failure. The lessons learned here have informed the design of the second generation of derivatives-based capital market solutions. Although there remain barriers to surmount, we are witnessing the birth of the life market, the market in longevityrelated financial instruments.