What does Longevity Swaps mean? Read on to discover the definition & meaning of the term Longevity Swaps - to help you better understand the language used in insurance policies.
In longevity swaps, which have been around for a long time, the pension fund buys protection against the risk of beneficiaries living too long (and the fund having to pay out more than expected) in the form of a commitment to exchange payments throughout the term of the swap. In entering into a longevity swap, the pension scheme has typically faced either an insurer or a bank. The insurers or banks have in turn sought to dispose of the longevity risk to the reinsurance market through a similar longevity swap. The two sides of these swaps have matching and opposite concerns. Life reinsurers worry about people dying too soon, while pension funds worry about people living too long.
We hope the you have a better understanding of the meaning of Longevity Swaps.