Surprise surprise, they actually do exist!
In February 2012, Deutsche Bank completed the first longevity transaction that relied on third-party investors, a 12 billion euro swap with Aegon NV, a Dutch insurer. Aegon paid Deutsche Bank a fee to assume some of its pension risk. The bank then sold the risk to investors, who receive a floating payment from Deutsche Bank based on how quickly pensioners die relative to an index derived from Dutch population statistics.The prospect of more widespread use of such investment vehicles, collectively dubbed death derivatives, concerns some regulators, who see in this fledgling market a resemblance to earlier financial innovations that turned toxic [...]
Some regulators are concerned about potential weak spots such as a lack of open market pricing. Since only a handful of insurers, reinsurers and banks are active in the market, risks over time could become concentrated. Losses would probably hit most firms at the same time.
A cure for cancer, for example, may not be celebrated at the investment banks and other institutions that had assumed longevity risk. They would face catastrophic losses as pension plans around the world simultaneously confronted the prospect of participants living years longer than envisioned.
There is literally nothing these compulsive gamblers won't throw money at. Heaven forbid that governments should ever consider the possibility that certain types of trades be banned outright. I mean, given everything we've learned about the way they conduct business, I think it's safe to assume that they will rig the longevity market the same way they've rigged all the others. Only this time, people might not only pay for it with their fortunes but with their lives. Really not good!
---Baron V
Comments