The Management Of Longevity Risk In China

With the development of the economy and improvement of medicine, many countries in the world have entered into the aging society, and the concept of longevity risk is come up with under this circumstance. Longevity risk has a great impact on the old and the social stability, so how to manage longevity risk more effectively is becoming more and more important.Three traditional methods of preventing longevity risk are the personal savings, the enterprise annuity and the social basic pension insurance. Because of the change of the individual endowment and the attitude toward one-child policy of China, the endowment brings good opportunity to the development of the enterprise annuity. Although the basic social pension insurance has achieved rapid development, the pension fund has to confront the shrink of its value due to lack of effective investment management channel. It turns out that the deficit of the pension fund is terribly large.There are many foreign scholars have doing a lot of researches on longevity risk in recent years, including recognition of longevity risk and measurement of longevity risk, the management of longevity risk. Along with the rapid development and maturity of global capital market, the foreign researchers put the emphasis on the securitization of longevity risk, in order to transfer the longevity risk in the insurance market to the capital market through designing derivative products. Foreign practice have offered lots of trials in securitization of longevity risk, including issued another mortality catastrophe bonds in2007and a longevity bonds in2004by the European investment bank, but the long bond was failed because of unreasonable design. The securitization of longevity risk has achieved a great success in longevity swaps. Domestic scholars have few researches on longevity risk, and there isn’t even a systematic research in China about how to manage longevity risk problem effectively. In view of this, this paper systematically specially to analysis how to manage the longevity risk in China, in order to provide a theoretical reference for China’s longevity risk management work in the future, this paper’s framework is as follows:Firstly, in order to help people recognize the longevity risk and increase the attention to longevity risk problem. This paper introduces the definition of the longevity risk, the undertaker of the longevity risk and the impact of the longevity risk on individuals, businesses and the government, then analyzes China’s current population structure condition and development of the pension insurance industry.Secondly, this paper will make a systematic introduction for some management methods on longevity risk, including the traditional management method and innovative management methods, and then analyzes the advantages and disadvantages of various methods, and the present stage of management situation on the longevity risk in China. In combination with the actual situation in China, the dissertation suggests managing longevity risk in the way of securitization of longevity risk is feasible.Thirdly, it introduces the method of the securitization of the longevity risk by using the experienced life table data. Taking the longevity swaps for instance, including longevity interchangeable definition, swap pricing and longevity related to the exchange of mortality, this paper expounds systematically and detailed that how to carry out the securitization of longevity in China, and trying to make up this blank of the domestic research.Finally, some advices are come up with for how to effectively manage the longevity risk in china in future. The author thinks that in China solving the problem how to manage the longevity risk effectively needs the joint efforts of the government and the enterprises. Not only needed related policy and the liberalization of preferential policy, but also needed technology improvement.This article is divided into six parts, and follows are the content of each chapter:The first chapter is mainly the introduction of the purpose and significance of the research, and it presents situation of domestic and foreign researches on longevity risk. This paper has tried to make summarizing, and reviews the related research method in this paper.The second chapter for this paper is the introduction of relative theories. This part will expound the definition of longevity risk, the difference between the contact of the longevity risk and an aging population, and then analyzes longevity risk adverse impact.In the third chapter it will analyze the present stage of our population situation and the development level of domestic pensions. Considering the analysis above, it suggests that Chinese confronts serious longevity risk problem.The fourth chapter introduces some traditional management method and some innovative management methods, analysis of current longevity risk management in China, and the problems that we should consider that make the capital market to manage longevity risk.The fifth chapter is taking the longevity swaps for instance, and applying population statistic data of China to pricing design of contract. It aims to provide an effective method for reference to the securitization of the longevity risk.The sixth chapter is the most important part of this paper, and it will present the recommendations on how to manage longevity risk.The main contribution of this paper is based on the reality of China; it has tried to make longevity risk securitization in order to provide a systematic reference. This paper can make up for the blank of domestic theory, and point out how to manage the longevity risk effectively for China in the future. The main disadvantages of this paper are:the analysis is not deep enough and the selection of relevant factors for prediction of the mortality lack data so that it can’t be used to further study. In addition, this paper mainly takes the qualitative analysis, so lack of enough quantitative analysis turn out that the result is not objective.