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The Esoteric Investor: Alternative Investments for Global Macro Investors by Vishaal B. Bhuyan

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2. Longevity and Mortality Risk Markets

Through a variety of structures including swaps, indices, bond structures, and reinsurance, institutions can offset their exposure to any issues related to demographics. The following lists further explain such issues. Figure 2.1 illustrates how longevity risk impacts net returns for institutions exposed to either longevity or mortality risk. For example, an annuity provider loses money as its customers live longer than expected. Inversely, a life insurance company would benefit from longer living customers as it would mean more premium in flows over time.

Organizations Exposed to Longevity Risk

Defined benefit (DB) pensions: A DB pension plan uses a formula based on an employee’s age, tenure, and income ...

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