Longitude Exchange, a new Insurtech recently launched in Bermuda, has announced the impending release of its digital marketplace for trading longevity risk in index-based format, as the company looks to lower frictional costs and timelines.
The new platform brings together hedgers and investors on a web-based ecosystem that’s been built specifically for longevity risk, which the insurtech says will bring transactional efficiency and enhanced liquidity to the market.
Longevity risk has been a hot topic recently as a result of the COVID-19 pandemic, but also because it’s been a very active time for the wider pension risk transfer market.
As noted by Longitude Exchange, longevity risk causes earnings volatility and high capital charges for those managing retirement liabilities. However, these can be alleviated through hedging, and Longitude Exchange intends to cut cost and complexity which it says has limited innovation in this market.
“Globally, pensions and insurers hold an enormous amount of longevity risk from retirement obligations. Longitude Exchange will connect them with a broad range of institutional investors who seek uncorrelated risk premia in insurance linked securities,” said Avery Michaelson, the Co-Founder and CEO of Longitude Exchange. “We’re turning longevity risk into an asset class.”
“This market lacks a marketplace. Presently, transactions are brokered in an opaque process that has limited capital markets participation. Accessing risk taking capacity from a broader set of institutional investors is the best way to fulfill the longevity risk market’s potential. Longitude Exchange is this marketplace,” he added.
Longitude Exchange notes that by establishing a marketplace it will drive down frictional costs and timelines through standardisation. At the same time, the marketplace will offer price transparency and provide an option for secondary liquidity, all of which leads to greater deal volume and broader capital markets involvement.
“By using Longitude Exchange, longevity risk hedgers can efficiently manage their longevity risk and capital charges. Our platform provides hedgers with tools to analyze, structure and place their longevity risk hedges at a price that’s typically lower than other forms of capital. Our goal is to provide hedgers of longevity risk with greater capacity, faster execution, and better pricing,” said David Schrager, Co-Founder and Chief Financial Officer (CFO).
The company says that it plans to operate as a central counterparty for transactions, bringing enhanced credit support to the large, long-duration transactions it supports. Longitude Exchange’s platform has been built to handle transaction structuring, trade documentation, structural set-up, primary issuance, managing collateral, and providing ongoing valuations.
Diederick Venekamp, Chief Technology Officer (CTO) and Co-Founder, added: “The technology we offer, for free, through the platform is capable of analyzing the risk and capital aspects of index-based longevity risk transactions, which will streamline the process of transacting longevity risk for both sides of the trade.
“Longitude Exchange will provide unprecedented access to the longevity risk market through an easy-to-use digital interface and standardized transaction formats.”
Longitude Exchange’s founding team has extensive experience in the longevity risk and insurance markets.
Michaelson previously served as the Head of Longevity at Société Générale, subsequently founding Longitude Solutions as a transaction-oriented advisor in the longevity market.
Schrager has extensive experience structuring, risk managing and trading derivatives and re/insurance contracts during his career at ING Group and NN Life. He joined forces with Michaelson in 2018 as a Senior Partner at Longitude Solutions. Schrager also formed a separate financial and management consultancy called Adjacent.
While at Adjacent, Schrager worked alongside Venekamp, who is the Managing Quantitative Consultant and a founder of VB Risk Advisory. Together the pair have advised European insurers and banks on a range of financial and risk management projects.
Initially, Longitude Exchange will have a focus on North American and European markets as it looks to address the longevity risk hedging needs of pensions and re/insurers.
Today, it invites rated and un-rated institutional investors to participate on the platform as risk takers, using bespoke longevity derivative contracts and collateral mechanisms to transfer risk and ensure payment obligations are met.
The exchange also sees itself as a platform for other service providers, including mortality data providers, risk modelling companies, and reinsurance brokers and consultants.
