Life, the universe and everything: Part III

Welcome to the third and final part of Douglas Anderson’s serialised blog covering life, the universe and everything.


Welcome to the final part of my serialised blog covering life, the universe and everything. We’re thrilled by the great interest in our 10th birthday seminar and really looking forward to hosting it next Tuesday.  

Part III: …and everything

10 years ago, Nassim Taleb had not coined the phrase “Black Swan” for an “unknown, unknown”, or extreme event. This term was used to describe several features of the financial crisis, such as the defaults by US mortgage borrowers after their initial teaser rate period had finished, leading to a contagion of inter-connected effects through the financial system.            

Back in 2008, after 20 years of falling interest rates, who would have imagined that they would become negative in the next 10 years?  Negative interest rates were an unknown, but became a Black Swan for defined benefit pension funds, increasing the deficits of those that had not hedged and leading to bumper transfer values. Today, a biological limit on human life is a widely held belief. Yet, there are several groups of scientists around the world who are trying to “hack ageing”. It seems highly likely that our genomes are going to play a bigger role in actively managing our health; did you notice GSK's recent strategic investment in 23&me?

Thankfully, today, managers of our financial institutions attach a greater importance to joined-up (or enterprise-wide) risk management than they did a decade ago. So, strategists ask themselves tougher questions on inter-dependencies and contagion effects. You might like to ponder: what do you think might happen to financial markets if the ageing process is hacked?

Not only do we have greater risk awareness, but pension funds now hedge out the “unrewarded” risk of longevity. Starting in 2009, 43 UK pension funds have entered into “longevity swaps” with insurers. This mechanism creates greater security for retirees’ benefits. This process started with the UK’s biggest funds, but in recent years several smaller funds have hedged longevity risk. I’m proud that Club Vita data analytics have helped many of these innovative transactions.       

Looking ahead, the greater sophistication of risk management techniques looks set to continue. Insurers are increasingly specialising into those that have an appetite for longevity risk and those that focus on financial risks. US insurance regulators are considering requiring separate risk capital for longevity risk, which looks set to accelerate this trend. The risk transfer market is looking increasingly international. In 2015, Club Vita set up an outpost in Canada. Richard Brown will join us on 4 December to give us a report from the Canadian frontier.

Finally, a big thank you ….

I’m so grateful for the faith shown by the visionary founding supporters of Club Vita, and the hard-work of our talented and loyal team. The core of our UK team remains the founding members from 10 years ago: notably Steven Baxter, Andrew Gaches, Mike Wilkinson and Steven Hood. We’re sorry to be losing Mike to a well-earned retirement. But we have gained several talented team members, including Erik Pickett, Nick Chadwick, Conor O’Reilly, James Maloney and our Canadian team.   

We’re looking forward to the next 10 years of continued innovation, and helping many more pension funds to improve the outcomes of their members. 

I hope to see many of you on 4 December.

Lang mae yer lums reek

Douglas

Club Vita Life Expectancy Graph
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