TY - JOUR T1 - Opening up New Frontiers in Longevity Risk Mitigation:<br/> <em>The €12 Billion AEGON Longevity Transaction</em> JF - Special Issues SP - 88 LP - 91 VL - 2012 IS - 1 AU - Sylvain de Crom Y1 - 2012/09/21 UR - https://pm-research.com/content/2012/1/88.abstract N2 - In early 2012, AEGON announced the largest longevity transaction to date in terms of underlying reserves. However, it was not simply the size of the transaction, nor the fact that it was the first to be completed in continental Europe that was particularly noteworthy. It was rather the way in which AEGON designed the longevity transaction itself. So what was so special about AEGON’s deal and what does it mean for the growing market in longevity insurance? The transaction was the first to employ the innovative structure used. Although labeled a “swap” by some in the media, the structure of the transaction was more similar to catastrophe bonds and was provided on the basis of a specially created synthetic portfolio designed to match part of AEGON’s underlying exposure. Technically, it presented the market with an innovative form of risk modeling, employing detailed stochastic modeling of the underlying risks including trends, volatility, correlations, and individual pensioner risks.Until recently, (re)insurers have been the sole bearers of longevity risk and, as a consequence, (re)insurer capital is often cited as a key constraint to transacting longevity risk. The new longevity transaction has effectively changed this, opening up the market for longevity protection. By enabling capital markets investors to participate in the market for longevity insurance, capacity has been increased many times over, allowing pension plans real choice in hedging their exposure. As a result, larger plans, who previously may have thought that there was no de-risking option for them, are now more likely to be able to find an insurer who is ready and able to protect them against longevity risk. ER -