I welcome the recent research by Swiss Re concerning longevity risk in Canada, but I believe the focus of pension fund managers should be on asset-liability management (ALM) and not on longevity management. There are many benefits to be gained by focusing on ALM with limited cost and changes can be taken in small steps. By contrast, the bid-offer in longevity will presumably remain large (reinsurers are not here to give away spread!), every deal will take significant time to negotiate and therefore the size of deals must be significant enough to justify the time and effort.
Finally, consider the life expectancy of the average Canadian versus the average American. Who do you think would live longer? And by how much? Here is where I start to consider the potential self-serving nature of the report: take a look at page 5 of the report and notice that Canadians are expected to live longer than Americans. If you go back to the report by the UN on world life expectancies you find 2.5 years differential from birth. Think relative value for a minute: if you had the choice would you buy or sell Canada life expectancy for 2.5 years more than the US?
That having been said, I look forward to seeing indicative pricing on longevity product in Canada; it is good progress for our capital markets.
