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JP Morgan launches the LifeMetrics index

To reduce the risks on the pension fund industry, JP Morgan launched the LifeMetrics index. This index is part of a global platform called "LifeMetrics" which aim is to measure and manage longevity and mortality risk exposure...

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JP Morgan has designed the LifeMetrics index so that it becomes the main index of the financial industry used to create longevity linked derivatives and other structured products. LifeMetrics allow pension funds to calibrate and protect the longevity linked risk of their beneficiaries. The index contains historical and current statistics on mortality rates and life expectancy depending on sexes, ages and nationalities. The index will initially be available in the United States, England and Wales. JP Morgan plans to extend similar indices for other countries in the coming months. The index is calculated by an independent agent and will be governed by an international advisory committee with experts from different organizations.

The development potential of a trading market is based on the standardization of the measurement of longevity risk associated with pension funds, as well as the death risk faced by the life-insurance. “We believe that this index will facilitate the development of a market for trading longevity risk," says Global Head of Rates, Securitised Products, Proprietary Positioning and Principal Investment Businesses, Patrik Edsparr. "JPMorgan is destined to lead the development of this market."

JPMorgan’s LifeMetrics platform, developed with Watson Wyatt and the Pensions Institute Cass Business School’s advice will also provide customers a comprehensive framework to control longevity risk, including analytical tools and software to model and predict both current and future Exposure. The platform is transparent with methodology and algorithms of calculations fully documented and available.

"Compared to other approaches, we wanted to offer pension funds, insurance companies and investors a complete set of tools and options to strategically manage longevity risk," said Managing Director and Global Head of Pension Asset Liability Management, Guy Coughlan. "LifeMetrics platform and the LifeMetrics Index are designed to provide clients with practical tools to measure longevity risk and to hedge it with effective solutions involving derivatives and structured products."

"A market for trading longevity and mortality risk will assist financial institutions, pension funds and their sponsors by providing a price, a capital allocation and financial reporting. Identified a set of indices is necessary to start this process, "says Robert Hall, actuary at Watson Wyatt.

For Professor David Blake, Director of the Institute of pensions to the Cass Business School, the multidisciplinary and pragmatic approach of LifeMetrics will make this platform the market’s benchmark.

Next Finance May 2007

Article also available in : English EN | français FR



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