Standardizing longevity and life risk trades will be the initial focus of a newly created industry group, but it remains unclear how the group will coordinate its efforts with the existing work of the International Swaps and Derivatives Association (ISDA).
According to a statement from the Life & Longevity Markets Association (LLMA), the group intends to “set standards for the new trading market” in longevity risk, including “creating templates for standardized longevity products.”
“The launch of the LLMA brings together a number of parties to create market-wide standards suitable to promote a liquid traded market,” said a statement from John Fitzpatrick, director of the LLMA and a partner with the UK consulting firm Pension Corporation.
The ultimate goal of the LLMA is to create longevity trading indexes as well as standardized valuation models for longevity. The initial work of the group will focus on the UK.
However, this is not the first effort to create a standardized platform for the longevity risk market.
Last year it was reported that the ISDA — a trade group for the over-the-counter derivatives market — was working on a standardized contract for longevity swaps.
As first reported by Institutional Investor’s Derivatives Week, the ISDA effort was an attempt to customize the group’s existing “master agreement” for OTC contracts to allow for greater customization and standardized terms within longevity swaps.
While the LLMA is aware of the IDSA’s work, the two groups have not initiated any discussions regarding their common purpose, says Victoria Sisson, a spokesperson for the LLMA.
“At the moment they are not partnering, but it’s been stated [by the LLMA] that any intellectual property developed will be available to all market participants,” Sisson explained. “It’s not like they are in competition.”
A spokesperson for the ISDA declined to comment on the record regarding the longevity swap initiative or the work of the LLMA.
Sisson added that the LLMA will look to collaborate with all market participants. She explained informational exchanges could run both ways, with firms transferring existing platforms or indices to the group.
As an example, Sisson said that JP Morgan is considering “donating” the intellectual property for its LifeMetrics program to the LLMA for inclusion into a possible trading platform.
LifeMetrics is a tool developed by JP Morgan for measuring and managing longevity and mortality risk. Both Watson Wyatt and the Pension Institute at the Cass School of Business are listed as advisors.
