The main life insurance products exposed to this risk are immediate and deferred annuities1. Sponsors of defined benefit pension plans carry the same risk, because payments grow the longer pensioners live.

The IMF report says longevity risk can arise from small errors in forecasting the continuing rise in life expectancy that compound over time, or from a sudden large change such as an unanticipated medical breakthrough. The risk that the whole group lives longer than expected cannot be diversified away.

Notes

  1. Bank of England, Prudential Regulation Authority, "Supervisory Statement SS18/16" (updated November 2024), paragraph 1.4. ↩