The Life & Longevity Markets Association (LLMA) is striving to bring greater confidence to pension schemes and insurers carrying out longevity hedges through the publication of its proposal for a standardised framework for longevity indices.

The proposed index framework is intended to provide a consistent and transparent set of standards for developing, producing and publishing longevity indices that market participants can use to facilitate longevity transactions. The proposed framework includes a set of principles on which all longevity indices should be based and a set of guidelines for the methodology of the index.

“The LLMA proposal is a significant milestone in the creation of a robust and efficient longevity marketplace,” explained Guy Coughlan, chair of the LLMA Technical Committee, spokesperson for the LLMA, and managing director, J. P. Morgan. “We believe that the availability of a standardised approach to longevity indices – both public and private – will help to encourage the development of a healthy, liquid traded market in longevity risk transfer, which is the ultimate aim of the association.

Martin Bird, head of longevity & risk solutions at Hewitt Associates, added that the firm welcomes the LLMA’s publication of its proposed framework and believes that such standardisation is likely to help confidence in the markets. He said: “To the extent that there are more willing capital market participants in the longevity risk space, this is good news for capacity and pricing competition.

“This is particularly timely given the continued interest in longevity risk management and executing risk transfer solutions from both scheme sponsors and trustees. We have already seen £6bn of risk transfer deals signed during 2010, and it looks likely that this figure will be in excess of £10bn by the end of the year.”

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